Indo-Pak trade: look beyond MFNs

In his 2005 bestseller, "The World is Flat", Thomas Friedman, the renowned NYT columnist, presented a theory called "The Dell Theory of Conflict Prevention". The theory stipulated that "no two countries that are both part of a major global supply chain, like Dells, will ever fight a war against each other as long as they are both part of the same global supply chain." Friedman supported his theory by citing China and Taiwan, two hostile neighbours, who gradually became economically integrated by virtue of shared supply chains, thus limiting the likelihood of territorial wars. Six years later, Friedmans idea of a similar engagement between India and Pakistan is proving viable. The untapped potential of Indo-Pak trade is estimated to be around $10 billion, compared with the current level of $2.5 billion. The two countries officials are meeting at regular intervals to normalise bilateral trade relations. The prospects for unfettered bilateral trade and peaceful coexistence look brighter than before, yet there is a need to take stock of recent developments at home. First, it seems that the issue of granting India the "Most Favoured Nation" status has polarised general opinion in Pakistan. As per WTO glossary, an MFN treatment is merely a "principle of not discriminating between ones trading partners". Yet a literal translation into Urdu makes it a misnomer in the context of turbulent Indo-Pak relations. The religious right and jingoistic elements have been exploiting just that. Rather than blowing hot and cold, the government should have taken an unequivocal policy stance and informed the political and religious stakeholders that Pakistan wouldn budge from its position on outstanding conflicts with India. Secondly, some observers point out serious deficiencies during governments negotiations with India. They feel that the government ceded too much ground in the negotiations (granting of MFN status for Indian support on EU textile quota), without getting concrete assurances on the NTBs. However, things need to be kept in perspective here. One, Pakistan had been 15 years late to reciprocate on the MFN status to India. And two, the Indian NTBs are not Pakistan-specific per se, as numerous studies have shown. Thirdly, the private sector is not entirely sold to the idea yet. Up till now, the business sentiment has oscillated between energised optimism and outright rejection. The manufacturers of intermediate goods support trade normalisation and MFN status for India, whereas the manufacturers of finished goods do not! Some industrialists lament that the government went ahead towards opening up bilateral trade, without analysing its impact on local industries. Detailed sector studies should have been carried out beforehand. In this scenario, it is important to look beyond the issue of MFN status for India, as it will gradually be implemented over a course of two to three years. Prime issues are to bring down the NTBs, introduce flexible visa regimes and address the concerns of private sector at home. Already, there is strong lobbying and push-back from the private sector over the composition of upcoming negative list. To move forward, a holistic perspective is in order. Since a perpetual state of cold war and hostility is unsustainable, it becomes imperative for the two neighbours to resolve all outstanding conflicts. To achieve that, mutual economic and social stakes need to be developed. And the best way to do that is to open up individual markets for trade, and encourage people-to-people contact.