MFN: PVMA fears flood of Indian competitors

The much-stalled peace process between Pakistan and India appears to be chugging along once again. The granting of most favored nation status to India, has been fodder for debates in the media and elsewhere of late. While much of the political discourse has been punctuated by fear mongering and anti-India rhetoric; the countrys businesses have raised more tangible concerns regarding the threat of competition from Indian competitors. Proponents of granting MFN status to India point to the fact that India has already granted the same to Pakistan. But it is mention worthy that the extremely complex non-tariff barriers erected by most states of that country have rendered this move by the Indian government, as a largely token gesture. Pakistani manufacturers of edible oil are among those clamoring against a reciprocal stance by the country towards its eastern neighbor. They argue that given the prevalent tax regime, locally produced edible oil is far from competitive compared against the Indian edible oil industry. In a recent working paper released by Pakistan Vanaspati Manufacturers Association (PVMA), the industry stakeholders have called on the government to take steps to protect the local industry before extending MFN status to India. PVMA has urged government to remove the 0.75 percent warehouse surcharge on imports of edible oil along with zero-rating imports of the same instead of the Duty and Tax Remission for Export scheme (DTRE). The representative body has also asked the government to include edible oil on Pakistans negative list under the MFN. Indian manufacturers of edible oil face high taxes on local sales, but exports are incentivized through relatively low duties. As such, Indian firms would find exports to Pakistan to be a bountiful proposition, especially since given their relatively larger manufacturing facilities; they enjoy economies of scale over Pakistani competitors. If the local industry were to fold under pressure from abroad, food security in Pakistan may be at risk; argues PVMA. Commerce secretary Zafar Mahmood has already assured that the implementation of the MFN status is subject to the provision of level playing field for Pakistani businesses; particularly exporters. These fears of being washed away by a flood of Indian products in local markets, are shared by other sectors as well. At the heart of the debate, remains the plethora of non-tariff barriers erected by state authorities in India. It follows that a lasting resolution for genuine concerns of local industry in this regard must come through steps by Indian authorities to remove NTBs and truly open up markets on a level footing. Given the fiscal constraints faced by GoP; relaxing the tax/ duty regime for textiles, pharmaceuticals, auto and edible oil industries is hardly advisable. Besides, if the two countries really want to implement concrete steps for economic integration, they must persevere to do away with protectionist measures; not beef them up.