MFN not to harm local industry

Almost 80 per cent of the country’s trade bodies and business associations have shown fear of losing their domestic market after granting Most Favored Nation (MFN) status to India. However, there are still safeguarding measures to protect local industry. Granting equal status to India, as Pakistan has already granted the same to other countries under the rules of World Trade Organisation (WTO), was a mandatory subject for Pakistan. However, if Islamabad is apprehensive of possible infiltration of exports from India, it can take measures, under WTO’s own provisions against such imports to protect local industry.
According to a fresh report prepared by TDAP, article XIX of General Agreement on Tariffs and Trade (GATT), provides that if a country finds a product being imported “in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers” it can impose safeguard measures to restrict such imports for temporary periods.
There was already an example of US imposing safeguard measures against foreign imports in order to protect its domestic steel industry.
Report says idea of protecting domestic economy from ‘infiltration’ of Indian products appears to be based on an assumption that all Indian goods are more competitive than domestically produced goods. Opening borders for trade does not suggest an unrestricted flow of Indian products. All Indian imports into Pakistan will remain subject to tariffs already in place. It can also be argued that if Indian goods remain cheaper than their domestic counterparts even after paying import duties, then why not allow them?
Does it not auger well for ‘Consumer Protection’ outlook for people of Pakistan? Nevertheless, if it is felt that Indian imports into Pakistan are increasing due to unfair practices like price undercutting etc, then Pakistan is free to restrict imports of specific products by increasing tariffs under various provisions of the WTO for example anti-dumping duties, countervailing and anti-subsidies etc.
Furthermore, substitution of Pakistan’s imports with cheaper Indian products should be more than welcome since this could benefit us in two ways: Firstly, low cost of imports and secondly, lesser time involved. Findings of trade diversion theory on Indo-Pakistan trade relations suggest that Pakistan can save valuable foreign exchange of $1.5 billion to $2.0 billion in case Pakistan diverts imports of such items (Chemicals, steel, machinery, industrial equipments, plastics etc), which are not locally manufacture and have to be imported from far-flung markets like Brazil, Mexico, Australia, Germany. Since these products are available from India at competitive prices and substantially cut-down transaction time and cost.
Also, “Strategic considerations” have been used to advocate denial of MFN to India. And, certain Pakistani manufacturers and businesses have also been preoccupied with ‘dooms day’ scenario that granting of MFN status to India will ‘flood’ Pakistan’s markets with Indian goods and that it would mean a complete obliteration of Pakistani industry.
Question of granting MFN status to India is perceived to be a long standing demand from India, whereas in reality it is an integral part of commitments undertaken by both countries under WTO agreements. Fact of the matter is that under article-I of GATT 1994, all members of WTO are bound to grant MFN treatment to all other members, with respect to trade in goods.
This makes it mandatory upon Pakistan to grant MFN status to India, as non-compliance constitutes a violation of WTO Agreement. India has not taken matter to WTO Dispute Settlement Body. If Pakistan is waiting to respond when India does take MFN matter to Geneva, then it seems that Pakistan is ill-advised, as in all likelihood the decision would be against it. Additionally, by not taking MFN matter to Geneva, India has already scored a ‘Moral victory’ which is already tilting global opinion in favour of India’s trade policies.