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“I do not want to criticize a neighbouring country but I submit that energy in Pakistan is spent in disputes and clamours instead of work. If she had done even one fourth of what India is doing she would have made sufficient progress.”
This ever-green truth about Pakistan articulated by late Jawaharlal Nehru on 13th July 1954 is more relevant today. It shows as pain & misery in every sphere of its relationship with its forbearing parent, India.
And a notable case of such contrived discord is bilateral trade, whose potential as deliverer of prosperity & peace in the region including Afghanistan has been sabotaged by Pakistan. India’s bilateral trade with Afghanistan is stunted by Pak’s denial of transit for Indo-Afghan bilateral flow of trade through its territory.
Afghan Pakistan Transit Trade Agreement (APTTA) does not permit India to transit goods through Pakistan for export to Afghanistan, according to WTO Secretariat’s Trade Policy Review Report on Pakistan issued during June 2015.
With Modi Government set to review grant of most-favoured nation (MFN) to Pakistan, it is first important to shatter a myth.
Certain top-notch institutions, TV channels and dailies have wrongly claimed that India granted MFN status to Pakistan in 1996 after formation of World Trade Organization (WTO). The fact is that India granted MFN to Pakistan decades earlier under General Agreement on Trade and Tariffs (GATT). The first MFN dispute between the two was in fact raked up by Pakistan in 1948! More on this issue later in this column.
MFN is the principle of not discriminating between one’s trading partners. It is the first article of GATT, which governs trade in goods. MFN is also a core element of General Agreement on Trade in Services (GATS) and the Agreement on Trade‐Related Aspects of Intellectual Property Rights (TRIPS). These three agreements are overseen by WTO.
Public should not expect much from the outcome of review of MFN status to Pakistan. It should recollect the fact NDA-I Government avoided answering questions in Parliament at least twice during 2002 as to whether India intended to withdraw MFN to Pakistan to protest against Pak-sponsored terror especially the attack on Parliament on 13th December 2001.
Consider now the course of MFN post Pakistan defeat in 1971 war and its prior history later to understand the growth opportunities lost due to Pakistan’s pathological hatred towards India (read Hindus) and Indo-Afghan ties.
As put by the then Commerce Minister B.B. Ramaiah in Parliament during August 1996, “India has been according MFN treatment to imports from Pakistan, except for the period between 1965 and 1974, when trade between the two countries was disrupted due to hostilities. However, Pakistan does not grant MFN treatment to imports from India.”
This fact was affirmed by President Pranab Mukherjee in Parliament during March 1994 when he held the Commerce Portfolio. He stated: “India has been according MFN treatment in respect of trade with Pakistan continuously since 1976.”
The two countries signed protocol for resumption of trade in November 1974 as envisaged by 1972 Simla Agreement. The Protocol stated: “Trade between the two countries will be on the basis of the most-favoured-nation treatment in accordance with the provisions and decisions of the GATT.”
The then Commerce Minister P. Chidambaram told Parliament during December 1995 that “trade between India and Pakistan is hampered by Pakistan government`s restrictive policy for imports from India. Pakistan has not accorded Most Favoured Nation status to India in contravention of its GATT/WTO obligations; instead it currently allows imports from India only against a unilateral list of 570 items, many of which do not have a real export potential from India.” Under the circumstances, it is not feasible to formulate a promotion strategy for trade with Pakistan, even if there is a vast scope. The Government of India have made a formal demarche to the Pakistan Government about the MFN status, response to which is awaited.”
In August 2003, Ministry of External Affairs pointed out Pakistan was not extending MFN to India by citing “extraneous security, political and economic reasons for this.”
Pakistan kept delaying grant of MFN status through phased increase of list of items that could be imported from India to 1963 items in 2012 from 570 in mid-90s. It substituted this positive list with negative list of 1209 items that can’t be imported from India during March 2012.
This resulted in expansion of total number of items that can be imported from India. This modest reform thus helped India ramp up its exports. The total bilateral trade thus registered 50% increase over 2009-10 level to $ 2.7 billion in 2013-14. This is not even one-third of potential bilateral trade of over $ 10 billion that can be harnessed if Pakistan grants MFN status to India and plays strictly by WTO rules.
In November 2011, Pakistan Cabinet gave Ministry of Commerce the mandate to take the process of trade normalization forward, which would culminate in the observance of MFN principle “in its true spirit.”
This true spirit dissipated in the air with Pakistan failing to honour its belated deadline of granting MFN status to India by December 2012.
Commerce Minister Nirmala Sitharaman thus told Parliament in December 2015 that Pakistan has not been able to adhere to its commitments of removing the trade restrictions on the land route, as well as the granting of MFN status to India as agreed during the 7th Commerce Secretary level talks held in September 2012.
Pakistan’s shameless failure to provide MFN status to India figured at two rounds of meetings by WTO organized to review the former’s Trade Policy during May and July 2015.
At the meeting held on 13th May 2015, Canada’s representative stated: “Pakistan should provide most favoured-nation (MFN) treatment to India, to further contribute to Pakistan's growth. We welcome the media report that your High Commissioner to India has stated that Pakistan is ready to grant India the status of ‘non-discriminatory market access’, which I understand is almost the equivalent of MFN, as a step in the right direction.”
Shockingly enough, at this meeting, Indian representative could not muster courage to speak against inexcusable delay in granting MFN to India for several decades.
This brings to origin of bilateral trade disputes that can be traced to horror called 1947 partition.
Through three submissions to GATT made during December 1947 , Pakistan made an unsuccessfully plea to GATT to snatch from India’s pre-partition economic status among the major trading nations.
It is here pertinent to quote a GATT document dated 22nd December 1947 relating to decision taking by its preparatory committee. It “unanimously agreed that, even after partition, the Dominion of India retained as one of the eight countries of chief economic importance and that the Dominion was accordingly entitled to a non-elective seat on the Executive Board, should the principle of non-elective seats be adopted.”
Reacting to this decision, Pakistan delegation lied at GATT. It stated that governments of two dominions had used the ratio of 2:1 for partition purposes and that if the same ratio were used in this case, India, in point of economic importance, would rank below Argentina, Italy, Australia and Sweden.
The document says: “The Indian Delegation wishes to point out that there has been no agreement between the Governments of India and Pakistan adopting the ratio of 2 :1 for the purpose of determining the relative economic importance of India in relation to Pakistan. On the contrary, under an agreement just concluded on the division of cash balances between the two Governments, Pakistan has been allotted roughly 18.75 percent of the balances.”
Through its submissions during December 1947, Pakistan delegation have suggested that if India is allotted a non-elective seat on the GATT’s Executive Board, the latter should share it with the former.
Ridiculing the plea for seat-sharing, Leader of the Indian Delegation Sir Raghavan Pillai trashed Pakistan Delegation’s contention that that India secured this recognition on the basis of her pre-partition status.
Now see what Pakistan did on the domestic turf to harm India economically.
“Within two months of Partition the Sind Government imposed certain restrictions on the movement of a large number of commodities with the result that not only was the free flow of goods stopped but even those goods intended for consumption in territories forming part of India which had, according to normal practice, been imported through the port of Karachi were held up,” stated India in its ‘White Paper on Indo-Pakistan Trade Relations’ released in February 1950.
Pakistan did not remove restrictions notwithstanding protests from India. This was the first breach of Standstill Arrangement that was approved by Partition Council. It provided for free flow of goods between to dominions up to 29th February 1948.
At the Inter-Dominion Conference held at Karachi during 10-13th January 1949, Pakistan accused India of violating MFN clause of GATT by refusing to grant it rebates of excise duty connected with import and export of goods.
India pointed out that MFN does not apply to rebates of excise duty. Moreover, it would not consider Pak demand in isolation. The demand could be considered as part of a comprehensive arrangement between two dominions as suggested by India in December 1948.
In February 1949, Pakistan filed a complaint with GATT secretariat against India on the same issue of excise rebates. In a letter dated 12th February 1949, Pakistan annexed the correspondence between the two dominions on the issue. India, however, did not budge from its stand
In May 1949, Pakistan withdrew its complaint by citing the agreement reached between the two dominions on the issue. According to the agreement, “Each Dominion will grant full rebate of excise on excisable commodities exported to the other Dominion if such rebates are given on export of the commodities to any other country.”
Another blow that Pakistan gave to Standstill Arrangement was to treat India as foreign territory so far as the movement of raw jute from Pakistan to India was concerned. Pakistan first asked that lndia should give to Pakistan a share of the revenue earned from the export duty on raw jute at the port of Calcutta.
Pakistan kept created hurdles in trade here and there even as it avoided entering into a long-term trade agreement.
As put by the White Paper, “Thus a stage was reached when it became clear that apart from obtaining supplies of coal from India, Pakistan had no intention of allowing any other trade to take place between the two countries and even goods from one part of India to another were subjected to all kinds of restrictions. In the circumstances the Government of India felt that they had no option but to discontinue the supply of coal to Pakistan, although in announcing this decision, they made it quite clear that as soon as normal trade was rendered possible, the supplies of coal would be resumed.”
In the budget speech for 1950-51, Finance Minister John Mathi, referred to “the deadlock in our trade with Pakistan” and stated: “if Pakistan has an overall favourable balance, which from the figures I have seen I doubt, that favourable balance is due entirely to her favourable balance with India.”
Mathi continued: “Secondly, this favourable balance with India is due to a very large extent to the open door policy in trade matters which we had adopted towards Pakistan and the restrictive policy adopted by Pakistan towards India.”
This brought bilateral trade to India supplemented this effort by lodging two successive complaints against Pakistan during October 1952 for levying/hiking licence fee/tariff on export of raw jute to starve Indian jute mills of raw material.
In March 1953, GATT closed India’s complaint following resolution of bilateral dispute that saw Pakistan agreeing to scrap the hefty licence fee on export of raw jute to India and reducing export duty on loose jute and India agreeing to reduce coal price.
India has not taken such tough action Pakistan since then to bring it to senses on the virtues of bilateral trade and peace in South Asia. Would Modi Government muster courage to lodge complaint against Pakistan at WTO, making Afghanistan an equally aggrieved victim of Pakistan’s intransigence?
Published by taxindiaonline.com on 5th October 2016
