SAARC Chamber urges MFN status for India
SAARC Chamber urges MFN status for India
May help Pakistan reduce import bill, increase exports
Tuesday, May 11, 2010
By Shahnawaz Akhter
KARACHI: The trade association of the South Asian countries has asked Islamabad to grant most-favoured nation (MFN) status to India, which would not only bring down the cost of imports, but give Pakistani exports an access to the vast Indian market.
Pakistan can benefit not only by accessing a big market for its exports, but save foreign exchange by substituting its expensive imports from the rest of the world with those from India, a report prepared by the SAARC Chamber said.
Granting MFN status to India should be perceived as an economic obligation instead of political obligation, the report said. However, the chamber said that granting MFN status would not work in its true perspective until India settles the protracted Kashmir issue with Pakistan under the UN resolutions. It also urged India to give a fair share of water to Pakistan to boost economic and trade ties.
The office-bearers of SAARC Chamber recently welcomed the dialogue between the heads of the state of the two countries at SAARC conference in Bhutan.
The report said that historically India and Pakistan should have been each others biggest and most important trading partners. In 1948/49, Pakistans exports to India were 56 per cent of its total exports, while imports stood at 32 per cent of the countrys total imports.
The trade between the two countries suffered during the two wars of 1965 and 1971, and for a period of nine years (1965-1974) the trade was almost negligible. Since 1996, trade between the two countries has been at much higher levels than before. In that year, India granted MFN status to Pakistan. Pakistan in turn increased its list of permissible import items to 600, which in 2008 has increased to 1,968 items at eight-digit level of H.S. Code, the report said.
After 1996, even though trade between the two countries has been fluctuating, the level of trade has been higher than that achieved in 1996, it said, adding that the trade stood at $180 million in 1996 and in 2004 it was $537 million.
As the result of confidence-building measures taken by the respective governments the trade between two countries crossed $1.34 billion in 2007/08, showing five times growth since 2000-01, the report said.
The SAARC Chamber highlighted the reasons of illegal and third country trade between the two countries due to non-resolution of political issues. The volume of the illegal and third country trade estimated at $2-3 billion involves goods such as chemicals, industrial machinery, spices, tyres, tea medicines, videotapes, cosmetics and viscose fibre, it said. These goods find their way either through third markets such as Dubai and Singapore or through smuggling, it added.
However, the volume of unofficial trade indicates tremendous potential between the two countries. If the illegal trade is altered into the official business, the current volume of trade may touch $6 billion-mark coupled with the huge revenue gains for the two countries.
The report said that Pakistan imported on higher prices from rest of the world and suggested, If Pakistan import items, which are not manufactured in the country and are being imported from the rest of the world from India, it can save foreign exchange of $2 billion.
The SAARC Chamber identified potential of bilateral trade between the two countries, in which both Pakistan and India can complement each others needs and, hence, produce cost-effective quality goods.
It mentioned that steel prices in Pakistan could reduce to half by trading with India. Iron-ore is an important raw material for steel industries, but on account of the lack of heavy engineering industry, Pakistan has to import iron and steel of $300-400 million per annum. By importing iron and steel from India the prices in Pakistan will be reduced to half. Likewise, rather than importing transport vehicles of over $2 billion from the rest of the world, Pakistan can import them from India, resulting in saving of 25 per cent foreign exchange, it said.
Pakistan imports pharmaceutical products of over Rs350 million per annum. Indian pharmaceutical products being 30 per cent cheaper than Pakistani products can also help save foreign exchange, it said.
At present, Pakistan imports machinery, including textiles and pharma of over $3 billion per annum as there is no high-tech textile machinery industry in the country. We anticipate that the opening of trade with India would help Pakistan acquire this machinery directly at much lower prices rather than high cost machinery from Germany,î the chamber suggested.
Liberalised Pakistan-India trade and establishment of joint ventures in the agriculture sector, especially in the areas of food processing and packaging is expected to generate around 0.27 million jobs in India and 0.17 million jobs in Pakistan.
Since the energy demand is likely to record higher growth in the years to come, there is a potential for cooperation between the two countries in electricity generation by utilising coal, it said. India is the only country, which has naphtha cracking facilities. Pakistan can put up a naphtha cracker plant in collaboration with India. It can export the surplus to other markets in the region after meeting its own requirements of the product, the report recommended. Pakistan imports about 4.5 million tons of diesel per annum, mostly from Kuwait. The import of diesel from India will lower the cost due to lower transportation cost, it said.
