Fear Thy Neighbour

In December, Commerce Minister Ahmed Mukhtar conceded that Pakistan does want free trade with India, but only after ensuring safeguards for its industry. This was a sequel to a widespread outcry against the government rushing headlong into a decision that might involve negative spin-offs for Pakistan's trade prospects. In fact, Mukhtar was forced to clarify, just before leaving for the New Delhi SAARC conference early last week, that bilateral trade was not on his agenda in India.

Pakistan had banned trade with India during the 1965 war. Ties were revived partially after the 1972 Simla Agreement. In 1985, trade was allowed between the private sectors of the two countries, though on a limited scale. In 1993, both the countries signed the WTO charter, whose Article 1 provides for equal and unconditional trade among the member-states. Since India had already given Pakistan MFN status, it gave the Benazir Bhutto government a non-paper in December to follow suit.

MFN status, in a nutshell, necessitates lower import tariffs and withdrawal of restrictive trade practices. Since any delay may be violative of WTO rules, Pakistani officials fear that India may go in appeal. And if a decision goes against Pakistan, the WTO's punitive action may push it to international economic isolation.

Realising this, officials here say the time has come to "face the ultimate". They rationalise that MFN status only means non-discriminatory trade— not open trade, not even conceding extra privileges. Pakistan can impose a tariff on an imported item from India, but this has to be the same with any other WTO member-state.

Moreover, officials cite the protective devices in the WTO charter. For example, if a country thinks an imported item is hurting its domestic industry, even if the WTO member-supplier is doing it at 'natural rate,' the host country can raise the tariff. Similarly, if an item is being supplied at an artificial price—with the supplier subsidising the item and dumping it in a country where it's in high demand—the recipient state can invoke the anti-dumping laws.

Given all this, the Bhutto government's problem is how to convince the public. Whenever there is a move to initiate closer ties, hardline lobbies get into the act. While some contend that expansion of trade with India would harm Pakistan's nascent industry, others say the Kashmir cause would suffer.

Traditionally both nations have pursued protectionism in foreign trade. Pakistan was the first to lower its trade barriers, in the '60s. And now, following the world trend, India is also easing its import restrictions. At this juncture, the two are said to be trading mutually in 600 specified items. The apprehensions voiced by manufacturers and some bureaucrats stems from the view that India is far ahead in terms of technology, and any partnership is bound to be unequal and may wipe out the latter's manufacturing sector. One valid point is that the cost of production in Pakistan is much higher than India, thus making it difficult for them to compete with Indian businessmen.

But the free trade votaries believe the economic indicators show that Pakistan is not doing so badly when compared to India. Pakistan's per capita GDP is $955 higher than India's. In per capita GDP (nominal) India is said to be trailing behind Pakistan, $310 to $440. It's estimated that India exports only 3.4 times more than Pakistan. In the social sector, it's only in literacy that India is ahead. Pakistan's population-doctor ratio, for instance, is better.

Tariq Saeed Saigol, president, Lahore Chamber of Commerce and Industry, says Pakistan can benefit through importing raw materials like food stuff, iron, steel, agriculture commodities and inputs like fertilisers and pesticides from India. He believes Pakistan can't afford to remain isolated regionally in the context of the increasing global trend of trade blocs. Former federal minister Mubashir Hasan says there's no harm in importing wheat and sugar from India at prices lower than what Pakistan is paying to countries like Australia. According to him, Pakistan's import bill will come down by opening up trade with India due to the cheaper commodities in the Indian market.

And, politically, some say it's irrational to assume that trade with India would be detrimental to the cause of Kashmir, as Pakistan sees it. Indo-Pak trade has been going on for years, albeit in a restricted form, but it has not affected Pakistan's stand on the dispute. "Why should a mutual MFN status, which basically entails elimination of mutual discrimination, harm the Kashmir policy?" asks a Pakistani economist.