Saturday, May 7, 2011


On February 20, 1999, the Prime Minister of Pakistan, Muhammad Nawaz Sharif, alongwith thousands of excited countrymen, waited anxiously at the Wagah Border for the arrival of a bus from across the border. As the vehicle emerged into view, an enthusiastic roar welcomed it. The bus stopped and as the door opened, a smiling distinguished personality stepped down. The Prime Minister of India, Shri Atal Bihari Vajpayee, was on Pakistany soil after 21 years. The two leaders warmly embraced and gleefully shook hands. Cameras clicked and buzzed; roses showered in abundance; anthems played with gusto by the band; 21 guns salute and a guard of honor, normally a ritual, but this time with sincere purpose; a sense of elation all around.

Shri Vajpayee in his speech stated: “I bring the goodwill and hopes of my fellow Indians, who seek abiding peace and harmony with Pakistan. I am conscious that, this is a defining moment in South Asian history, and I hope we will be able to rise to the challenge.” Mr Sharif in his remarks emphasized that “I have a vision for South Asia. I believe that countries, small and large, can live in harmony and work together for their mutual prosperity.”

In a joint statement issued at the end of the historic visit in which the Lahore Declaration and a Memorandum of Understanding were signed, the two leaders agreed, inter alia, that “the two sides shall undertake consultations on WTO related issues with a view to coordinating their respective positions.” The paramount issue related to WTO is of course, the Most Favored Nation Clause which has been a matter of intense debate ever since the Marrakesh Agreement came into force from January 01, 1995. Both Pakistan and India are prime signatories to WTO and they are bound to respect the agreement.

After the signing of the agreement, there was an increase in the movement of businessmen and industrialists across the border. The anticipated liberalization of the trade regime, especially after the “Bus Diplomacy”, had brought about this upsurge. The two Prime Ministers in Lahore had approved the establishment of the Indo-Pakistan Chamber of Commerce and Industry. The representatives of FPCCI and FICCI inked the agreement in an impressive ceremony in New Delhi. The business leaders hoped that once economic ties are established and become effective, then it would certainly put pressure on the political hierarchy to resolve the other contentious issues. The business leaders hoped that the Chamber would open a gateway for more bilateral trade. The business leaders hoped that if both countries play a greater, substantial role in free trade, they must adopt a more pragmatic approach to achieve long-term benefits and gains for their populace.

In March 1999, the 65-member delegation of Federation of Indian Export Organizations visited Pakistan and made an overwhelming impression among the Pakistany business and industrial community. The delegation members created the much-desired goodwill and made useful long-term business contacts. Their sojourn to Karachi, Lahore, and Islamabad spurred organizations, such as SITE ASSOCIATION OF INDUSTRY, to endeavor to carve out a niche in the Indo-Pak trade regime for their members. However, the Kargil adventure and the resultant fall-out did put a damper on the momentum of liberalization of trade.

After a hiatus of two years, the subcontinent is witnessing some flurry of activity. The much-hyped tour of the Indian delegation recently has sparked new hopes of liberalization of trade. A few months back, a high-level textile delegation arrived with offers of trade and friendship. The news on the political front seem encouraging, especially Vajpayee’s well-drafted letter inviting the Chief Executive to fly over to New Delhi for a tête-à-tête. The much-desired prayer is that maybe, just maybe, pragmatic sense would prevail, and the walls of hatred, distrust, and venomous propaganda would crumble like the Berlin Wall.

There is a plethora of possibilities for trade between the two countries. One very important area is software development. The Indian success story in computerland is a source of inspiration for other developing nations. Pakistan has excellent human resources that need proper guidance, encouragement, and opportunities to imprint their mark on the global information technology highway. The Pakistany software houses are looking for joint ventures and agreements with their counterparts in Bangalore. There is already cooperation and business going on between the software wizards on both sides of the Line of Control, although this is being done without the State Bank of Pakistan or even Riaz Naqvi of CBR being any wiser.

The textile manufacturers in Pakistan are interested in buying raw material, dyes and chemicals, machinery, and finished goods. They are keen to introduce their fabrics, textile made-ups, and expertise for the vast Indian market. There are many businessmen looking for mutually beneficial opportunities in plastics, packaging, automobile parts, electrical equipment, and other products.

The liberalization of trade will also reduce the undocumented trade that is of dangerous proportions and that has not benefited the Treasury thru duties and taxes. The exclusion of many items on the official list has compelled buyers to import Indian goods thru third country channels. It is time that smuggling be curbed and use of third countries as conduits be discouraged by promoting a negative list of importable goods rather than a discriminatory and cumbersome positive list.

The recent negative response given by the Pakistany policy makers to the question of granting Most Favored Nation status to India was hasty and gave an inauspicious twist to improving trade relations. The hackneyed and myopic attitude of economic planners is again evident from this pronunciation. The continued fear of a backlash from militant organizations and the vested interests, such as smugglers, corrupt border officials, and unscrupulous financiers, has again prevailed and the business community would have to depend on external sources to bring about Indian goods into the country. The decision by India to grant MFN status to Pakistan was hailed as a pragmatic approach. Pakistan has yet to cross the hurdles that have forced the government hierarchy to refrain from reciprocating to India in this matter. The MFN concept has been misunderstood by those who have strong reservations about it and who have been vociferous in their opposition to any notion of granting MFN status to India.

What is MFN? The Most Favored Nation Clause stipulates that “with respect to custom duties and charges of any kind imposed on, or in connection with, importation or exportation, or imposed on the international transfer of payments for import or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with the importation and exportation, any advantage, favor, privilege or immunity granted by any contracting party to any product originating in, or destined for, any other country shall be accorded immediately and conditionally to the like product originating in, or destined for, the territories for all contracting parties.”

The four-year old controversy over MFN status to India has generated intense debate in many sectors. The arguments are in an emotional mode and those not in favor of MFN status have been significantly influenced by religious, parochial, and ethnic forces. There have been powerful objections based on the notion that granting this status is tantamount to cuddling with the enemy. The successive governments have resorted to all kinds of approaches to determine the ramifications of this clause but they have not successfully educated those who may have misguided conceptions of the clause. In fact, the nomenclature, “Most Favored Nation”, has very disturbing connotations for those who hold India responsible for the prevailing tension in the region.

The anti-MFN lobby is of the belief that liberalization of trade with India will open a floodgate of cheap Indian goods and that non-tariff products will play havoc with the local industrial scene. They fear that local industry will be gradually eliminated if Indian goods are available in abundance. They also subscribe to the theory that more trade means less emphasis on Kashmir. They also contend that influential elements in the political field who have strong anti-Pakistan bias will ensure that Pakistany goods do not find a consumer base in the Indian marketplace. There is a feeling that the monetary policy of India will make things difficult for Pakistan, such as if Indian Rupee is subject to devaluation, the Pakistany Rupee will have to be marked down accordingly. This, of course, does not hold ground because the Indian Rupee is performing better than its counterpart on the other side. Moreover, India has a sizeable Foreign Exchange Reserve, while the financial managers here devise new ways to show to the world how much money is there in the government’s kitty. The anti-MFN lobby counter with the argument that since India has formidable engineering, computers, petro-chemicals, and heavy metal industries, etc, it would be difficult for the Pakistany enterprises to compete on an equal footing. The concept of two religions also is a motivating force for the anti-MFN lobby. They also refer to the intensive campaign on Kashmir launched by the government, not only within the country but also among the Islamic nations. They state that on the one hand, the government is highlighting the Kashmir cause and on the other hand, there are no qualms about granting preferential trade privileges. They do not appreciate the idea of a negative trade balance as they feel that the Indian importers will not reciprocate in the same spirit. Moreover, since poverty is more rampant in India, they assert that the Indian industry will take away jobs from the Pakistany manufacturing units. They are also averse to the idea of a cultural invasion that will follow once trade avenue is widened. Alas, they may not know that Pakistany companies are advertising heavily on Indian satellite television, especially during mega-popular Indian programs such as Kon Banega Crorepati. Moreover, thanx to Indian TV, the Pakistany viewers know the names and designations of more Indian politicians than they know of members of the “suspended” assemblies.

January 2005 will soon bring the full force of the WTO conditionalities while Pakistan is yet not ready for the real impact of globalization and free trade. Pakistan must come out of the cocoon with gusto. The managers and policy makers visualizing and running the economic show are still confused and dilatory by nature. There are talks and presentations of visions and strategies galore. There are new ideas being drummed up thru so-called task forces but then are relegated to the proverbial bureaucratic dustbin. There are fabulous statements emanating from the various ministries that loudly inform the denizens that the world is craving for the “Made in Pakistan” label but when the truth comes out these “bombs” are sham duds.

There is now an imperative need to do some practical, honest-to-goodness re-engineering in the trade scenario. The nation’s planners must look inward towards regional trade, especially among the SAARC countries. This bloc must shed intra-bloc imbroglios and must ensure and work for the successful implementation of SAPTA. Pakistan is ready to sign the Free Trade Agreement with Sri Lanka and this may be a harbinger of similar agreements with other SAARC countries. Then why draw curtains on meaningful trade with India?

The case for granting MFN status is quite clear. The opportunity that was missed in middle of May 2001 may yet surface with the yatra of General Pervez Musharraf. The Pakistany strongman is pivotally placed to bring about the realization of the dreams of people of India and Pakistan. His agenda should also include trade liberalization. Trade and industry can profitably survive and progress where there is peace and where resources are spent on development rather than on arms build-up. Today, Pakistany businessmen feel that they are in an abyss and that they are finding themselves in a straitjacket. A bright outcome of the Musharraf-Vajpayee talks can bring about an upsurge in business and industrial activity. Any positive innocuous news can zoom up the KSE index with analysts prancing about in an ebullient mood. Businessmen want a peaceful sub-continent. The General can provide as well lead the country on that avenue. The opportunity is knocking loudly.

Pakistan does not recognize Taiwan; yet there is a beeline of Pakistany traders arriving daily at Taipei Airport. This is one solid case of doing business with those whom Pakistan’s “time-tested” friend does not recognize or accept. Here, trade took precedence over political compulsions. Then why not unshackle the Indo-Pak trade regime?

Pakistan’s law enforcers conveniently close their eyes when nearly US$ 2 billion worth of Indian goods enter the borders of Pakistan. From Darjeeling tea to Pan Parag concoction to Ujala detergent to saris to Chiragh Din shirts to equipment for eye hospitals to computer software to textile machinery to Madhuri Dixit’s movies, Pakistany consumers can get anything Indian they want from the open market. All GST-free, import duty-free, and hassle-free. Then why this adamant decision to throttle two-way trade thru documented modes. This must surely be to protect vested interests that are taking advantage of the anti-Indian hysteria conjured up by certain organizations.

Another important point is that do the Indian policy makers really care whether Pakistan grants MFN status to them? In fact, an erstwhile Indian High Commissioner very categorically stated in Karachi that they do not give two hoots whether Pakistan does it or not because the two-way trade with Pakistan is a low, low percentage of overall Indian trade figures.

The liberalization of trade could bring about an economic revolution in the SAARC countries. The trade barriers being initiated by USA and Europe would hurt Pakistan seriously since it would be a long journey for domestic companies towards proper certification of ISO-9000, ISO-14000, SA-8000, Child Labor elimination, Freedom of Association, and other conditions of global trade. Again, the question arises: Are Pakistany companies ready for Post-2004? Therefore, it is important that trade between SAARC countries takes a monumental leap or EPB’s strategy of US$ 14 billion exports by 2005 and US$ 20 billion by 2010 would be another pipe dream.

Pakistan must at all costs talk about regional peace, regional trade, and regional interaction. The country must take the lead to bring about an enabling environment to achieve these objectives. All efforts must be made to increase economic activities because deliverance only lies thru massive industrialization and commercial activities. The policy to club all polemical issues between Pakistan and India and demanding their resolution first has not worked but, in the process, has resulted in sacrificing profitable economic contacts and damaging the one chance to stimulate economic activity in the present recessionary scene.

Pakistany and Indian leadership must stop this ego-trip and blatant propaganda. The leaders must put the welfare of people paramount. The hierarchy must work for the prosperity of the region. Only thru trade and industry could this roadmap be achieved. The destiny of millions depends on how the two leaders weave their discussions. As the bard rightly mused:

Bain-ul-Najoom kay faasalay kum ho chukay hain bahut
Bain-ul-Quloob kay leay idraq cha yi ay

May 28-2001

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