Pakistan maybe sort of extends MFN trading status to India

I direct your attention to the closing paragraphs in the following report -- the ones about Pakistan's economy and India's offer to sell electricity to the country -- because they'll lead off my next post, which is about the Old Guard's blindness to the lengthening shadow stalking their regime.

Pak to give India MFN status
by Jyoti Malhotra
August 04, 2011, Business Standard (India)

Pakistan has, in principle, agreed to give India Most Favoured Nation (MFN) status, a basic international trading procedure that has been languishing on the margins for the last two decades, but which will now allow both countries to conduct normal trade with each other.

The trade concession is likely to see the day when Pakistan commerce minister Makhdoom Amin Fahim comes to Delhi for talks with his Indian counterpart Anand Sharma in September. A letter from Sharma inviting Fahim to Delhi was carried by India’s high commissioner to Pakistan, Sharad Sabharwal, when he returned to Islamabad last week after the conclusion of the foreign minister-level talks between SM Krishna and Hina Rabbani Khar.

Perhaps it was the stardust that Khar threw in the eyes of the media during her visit to Delhi, which caused both sides to miss the seminal reference to MFN status hidden deep inside the joint statement, issued at the conclusion of the bilateral conversation.

The Indian and Pakistani media seemed so overcome by the designer memorabilia adorning Khar — Roberto Cavalli sunshades, Birkin bag and South Sea/Mikimoto pearls — that it failed to comprehend the fundamental nature of the shift that seems to be taking inside Pakistan today.

Clause number 12 of the joint statement, then, refers to both ministers agreeing that an increase in trade and economic engagement between the two countries would be mutually beneficial.

It then goes on to add: “In this context, (they) emphasised the early establishment of a non-discriminatory trade regime between the two countries, including reduction/removal of tariff and non-tariff barriers.”

According to highly placed government sources, this “non-discriminatory trade regime” is really an alias for MFN status, only Pakistan will never use that phrase.

Interestingly, Delhi hardly seems to mind. The breakthrough, in fact, came in April when Commerce secretary Rahul Khullar travelled to Islamabad to talk to his counterpart Zafar Mahmood.

Punjabi happened to be a common language between the two men, and even between large parts of the two delegations, but according to one source who was present, “it was the fundamental change taking place inside Pakistan that was the most important thing to behold.”

Both Commerce secretaries agreed that they would take this “non-discriminatory regime” idea forward when Zafar Mahmood came to Delhi for talks around November. In the meantime, Delhi got cracking with conducting a study on the impact of the so-called “positive list” that exists between India and Pakistan, about 1,938 items, and what would happen if this list were to be substantially scrapped.

In the Prime Minister’s Office, too, the idea that trade and commerce should be used as the bait to draw the neighbourhood closer gradually began to take hold. While Bangladesh has been a perfect example of that policy, the difference between Pakistan and Bangladesh is that Dhaka currently has an India-friendly government in place.

Last week’s foreign minister-level talks saw India unveil this gambit. The focus was on trade across the Line of Control, in deference to what the people of Kashmir would want. And since Pakistan had been obsessed with “Kashmir” since 1947, how could it possibly refuse cross-LoC measures that India was proposing?

Then there was the reference to increased trade across the international border at Wagah-Attari. The foundation of this enhanced trade had been laid during the Khullar-Mahmood talks in April. Both sides had, at the time, agreed that an integrated check-post should come up sooner than later at Wagah-Attari, enabling more trucks to be parked there.

But with Sharma now having invited his counterpart to come to Delhi in September, official sources said they expected the talks to speed up.

Meanwhile, the Commerce ministry’s study on reducing the “positive list” of items that can be traded between India and Pakistan, seems to have also come to the conclusion that India, as the much larger economy, can easily absorb the consequent opening-up to Pakistan.

It is believed that the 1,938 items can be pruned to about 200 items. Meaning, save for these items on the list, trade between India and Paksitan will be free.

However, earlier in July, word came from Islambad requesting Delhi to postpone the working group meetings on electricity and petroleum, that were to take place at about the exact time that Khar and S M Krishna were meeting on July 27. The working groups were supposed to go into modalities of how India could sell electricity and petroleum to Pakistan, thereby enhancing the integration between the two economies.

In the meantime, Pakistan’s newspaper ‘Dawn’ reported that Pakistan had already decided to turn down the Indian offer to sell electricity because the power would reportedly come from the Kishenganga hydroelectric project in Kashmir, which Pakistan had already taken to the international court for arbitration.

“India has massive electricity shortages but they want to sell some power to Pakistan. This will strengthen their claims in the court that they are producing cheap electricity and sharing the gains with Pakistan,” an official from Pakistan’s ministry of water resources was quoted by Dawn as saying.

Meanwhile, the Pakistani press is full of reports on how its economy is nose-diving. The overall budget deficit stands at 6.5 per cent of the GDP against a revised target of 4.7 per cent, and in the wake of the US cancelling $800 million worth of aid to Pakistan, officials in Islamabad are nervously wondering if they want to ask the IMF to revive its suspended bailout programme.

Under the circumstances, Islamabad’s purported rejection of buying electricity from India, ostensibly because the power project is in Kashmir, would amount to cutting its nose to spite its face.

However, Commerce ministry officials would not comment on the media report. “We have not heard anything about any rejection. We are continuing with our work on the basis that the working groups will soon meet again.”

Perhaps the visit of Makhdoom Amin Fahim in September will clear the air on this front.