Pakistan opens trade door to India

Pakistan's decision yesterday to grant India 'most favoured nation' status would enable Pakistanis to export more goods to booming India at a time when Pakistan's own economy is in the doldrums.

ISLAMABAD // Pakistan said yesterday it would open up trade with India in a sign of easing tension between the two nuclear-armed nations.

The decision to grant India "most favoured nation" status would enable Pakistanis to export more goods to booming India at a time when Pakistan's own economy is in the doldrums. Some Pakistani business quarters welcomed the decision, but others expressed concerns about cheaper Indian goods flooding the market.

The World Bank estimates that annual trade between India and Pakistan is around US$1 billion (Dh3.67bn) and could grow to as much as $9bn if barriers are lifted.

There are hopes that progress in trade ties will bolster a fragile peace process, which the two resumed in February.

The Pakistani information minister Firdous Ashiq Awan did not say when the new rules would take effect, but said the country's powerful military - which dictates policy on India - agreed with the decision.

"This was a decision taken in the national interest and all stakeholders, including our military and defence institutions, were on board," he said.

Granting a country MFN status means countries trade on equal and improved terms, typically granting mutually low tariffs and high import quotas.

India gave Pakistan MFN status in 1996 and has been waiting since then for it to be reciprocated.

"It's a very powerful step, and a welcome step in the right direction," the Indian trade secretary Rahul Khullar said. "It's good for business. It's good for commerce, and most importantly it increases confidence on the economic front that both Pakistan and India are committed to moving the social and trade agenda forward."

Pakistan has long complained that Indian quality standards and customs procedures have hindered the flow of Pakistani goods into India.

Ashfaque Hasan Khan, dean of the business school at the National University of Science and Technology (NUST) in Islamabad, said that unless India made it easier for Pakistan to export by reducing its restrictions and tariff barriers, granting India MFN status would have little effect.

"I am in favour of granting India MFN status but we should have fair trade," said Mr Khan, who has also served as an economic adviser to the government.

"Pakistan believes in fair trade. India had given MFN status to Pakistan in 1996 but still maintains Non Tariff Barriers. Unless the NTBs are eliminated, this is not going to work."

Trade has long been tied to political issues between the hostile neighbours, who have fought three wars since independence from Britain in 1947.

India has also been hit by terror attacks by militants trained in Pakistan, allegedly with the support of the Pakistani military.

An attack in 2008 in Mumbai by Pakistani terrorists froze a slow-moving peace process that has only recently begun again.

Mosharraf Zaidi, an Islamabad-based analyst and policy development adviser, said granting MFN status to India would help to ensure peace between India and Pakistan.

"The decision strengthens Pakistan's hand, helps to improve the domestic political environment and is yet another confidence building measure," Mr Zaidi said. "There is an adage that holds true that nations that trade with one another do not go to war."

Of the $1.4bn in trade recorded in 2009/10, Indian exports to Pakistan stood at $1.2bn, while Pakistan exports to India totalled $268 million.

The wider economic disparity is just as stark. Pakistan reported 2.4 per cent growth in gross domestic product in the 2010-11 fiscal year, while India reported 8.5 per cent growth.

Since the 1960s, when Pakistan was an Asian tiger economy and India a basket case, India's economy has swelled to $1.06 trillion, more than eight times the size of Pakistan's $207 billion.

Despite yesterday's move by Pakistan, no breakthrough was expected in the dispute over Kashmir, one of the world's most intractable conflicts.

Nationalists reared on hatred of India complained that "trading with the enemy" was a concession to New Delhi that should be resisted.

"Any move to enhance trade ties with India without solving the issue of Kashmir is an exercise in futility," said Hafiz Hussain Ahmed, from the hardline Islamist Jamiat Ulema Islam party. "Why is the government granting MFN status to a country that has destabilised Pakistan?"

But for most Pakistanis, any opportunity to improve the economic situation is welcome.

"Look at the inflation in Pakistan. Everything has become so expensive," said Javed Ikram, 42, who works in the private sector in Islamabad.

"An ordinary person, who has a fixed salary, is finding it very hard to make ends meet. If Indian products are cheaper then obviously an ordinary citizen would gain."

* With reporting from The Associated Press and Reuters