The Government of Pakistan's move to grant Most Favoured Nation (MFN) status to India is going to open floodgates of imports culminating in the death of local industry at large-scale including automotive sector. Negative list: PAAPAM has generated its own list for the auto sector. We are in total disagreement on the proposed target date of eliminating Pakistan's negative list by December 2012.
Pakistan's negative list must remain in place until such time the GoP demonstrates its own readiness to tackle and handle the onslaught of Indian finished goods thereby assuring the industry its rightful share of Pakistan's domestic auto market and capacity enhancement of Pakistani auto parts producers to enter Indian domestic markets easily.
Wide-ranging capacity building measures of the various ministries of the government of Pakistan are proposed prior to elimination of Pakistan's negative list with India.
Sensitive list: Pakistan's sensitive list of items under Safta comprised 1136 tariff lines of six-digit level and Pakistan has already made 20% reduction in the sensitive list without any input from respective stakeholders. 233 tariff lines have been deleted without any due diligence.
India having a large industrial base and knowing the capability of Saarc member states and in the presence of strong NTBs and TBTs can afford to reduce its sensitive list to minimum levels, whereas, Pakistan's industry is not as developed as the Indian industry. There should be no further reduction in our sensitive list lines as any further reduction would be detrimental to the local auto industry and engineering sector as a whole.
Conclusion and recommendations: In international economic relations and international politics, Most Favoured Nation (MFN) is a status or level of treatment accorded by one state to another in international trade. The term means the country that is the recipient of the treatment must nominally receive equal trade advantages as the "Most Favoured Nation" by the country granting such treatment. Exceptions allow for preferential treatment of developing countries, regional free trade areas and custom unions. Together with the principle of national treatment, MFN is one of the cornerstones of WTO law.
Granting MFN has domestic benefits, having one set of tariffs for all countries, simplify the rules and makes them more transparent, it also lessens the frustrating problem of having to establish rules of origin to determine which country a product must be attributed to for custom purpose. MFN also restrains domestic special interest from obtaining protectionist measures.
However, in the case of Pakistan and India the situation is not balanced. As noted above, India has architectured the WTO laws to its full advantage. Pakistan, on the other hand, followed a more liberal policy and did not introduce structural reforms that were needed to protect its local industry.
Therefore, PAAPAM firmly believes that until such safeguards are built in and necessary corrections introduced into our import regimes, grant of MFN status to India and opening up of the auto/engineering finished goods market to India will cause irreparable damage to us.
We strongly recommend that the Government of Pakistan must undertake capacity building of its own departments to ensure that necessary structural reforms and focused policy frameworks are in place that assure local industrial manufacturing units enough strength to work in a globally competitive environment. Necessary funding lines have to be put in place where required.
PAAPAM favours step-wise trade opening with India in the following manner:
1. Implement AIDP within the Auto sector through the Engineering Development Board of Pakistan.
2. Introduce immediate structural reforms, policy changes and capacity building of GOP departments managing Pakistan's Trade Policies and Import regimes.
3. Harmonize Quality Standards and Testing laboratories between both the countries.
4. Harmonize HS codes regimes including their nomenclatures.
In order to provide a level playing field to our manufacturers (and assist our industries in achieving a more competitive pricing structure), the following imports may be allowed from India through all routes (including Wagha) immediately:
1. Raw Materials which include steels, plastics and rubber.
2. Special machinery and equipment including testing equipment.
3. Tools, dyes, jigs and fixtures.
4. Process and manufacturing inputs.
5. Sub-components when imported by PAAPAM members under a JV duly approved by the EDB.
To ensure that local auto parts industry continues to grow both in the shape of volumes and technology, import of finished autoparts in any form including CKD/SKD must not be allowed for OEM's or after markets.
We strongly believe that any trade, if undertaken, must be based on equality and our industry must have an equal access to the Indian OEM supply chains and after-market, as would the India based companies in Pakistan, once trade is fully opened.
We would also support and encourage Indian Automobile manufacturing companies, who would like to invest in Pakistan at OEM level within the framework of the new entrants policy of the Ministry of Industries.