In an interview with our correspondent Amer Sial, Pakistan’s former ambassador to World Trade Organisation Dr Manzoor Ahmad, is of the opinion that the granting of MFN status to India is in Pakistan’s interests as it will allow diversification and increase in exports.
Profit: Is it in Pakistan’s economic interest to give MFN status to India?
MA: Without a doubt it is in Pakistan’s interest to do so. There are several reasons why this decision should have been taken much earlier. Firstly, Pakistan needs to diversify its export destinations, as currently 50 per cent of its exports go to either United States or European Union. Secondly, our imports from India come mostly through third countries adding to costs. Thirdly, all successful trading nations build on their regional base. In contrast, our regional trade is less than five per cent.
Profit: India’s economy is much larger than Pakistan’s. How can we compete against Indian industry?
MA: The experience of many small economies that developed closer trade relations with larger ones shows that it was a “win-win” situation for both sides. For the smaller economy there was the gain of access to a bigger market. For instance, when Turkey signed an agreement with EU in 1996 for free movement of industrial goods, its exports totaled a mere $11.5 billion. Fast forward fifteen years and Turkey’s exports to the largest economy in the world have multiplied five times, reaching $61 billion last year. Similarly, Mexican exports to United States more than quadrupled after it joined North American Free Trade Area (NAFTA) in 1994, climbing from $60 billion to $280 billion per year. As for direct trade between Pakistan and India, at the very least it would help increase our global exports as our input cost would come down.
Profit: Our exporters face many non-tariff barriers when they export to India. What can be done to improve our exports to India?
MA: Our exporters would need to specifically identify such barriers and bring them to the notice of Ministry of Commerce. It is a fact that India used to be a closed economy but it has been gradually opening up. Its imports are now growing at a fast pace. Pakistan should try to benefit from this opening of Indian economy. An example is when Pakistan started exporting cement to India, many exporters complained of difficulties in meeting the Indian standards because of bureaucratic hurdles. However, these problems have been resolved to a large extent. Now the main problem is non-availability of railway carriages. If India allows import of cement through Wagha border by road, Pakistani exporters may be able to export up to 10 million tonnes as India is facing a shortage and Pakistani cement is more competitive.
Profit: It is known that India is the world’s biggest user of anti-dumping duties. Will this not hinder our exports?
MA: It is a fact that India is the world’s most frequent user of anti-dumping duties but most measures are applied against China. Despite frequent application of anti-dumping against Chinese imports, their mutual trade has been growing rapidly. When India and China agreed to give MFN status to each other in 1984, their mutual trade was very low. Over the last 20 years, their trade has grown from less than $1 billion to over $60 billion in 2011. This is an increase of over 60-fold. So far there is no known case where India has imposed any anti-dumping duties on exports from Pakistan.
Proit: India is one of the largest automobiles manufacturers and some of its cars such as Tata’s Nano brands are sold at less than $2000 per unit. Our cars cost many times more. How can we compete against them?
MA: It is true that our automobile industry does not have economies of scale and is therefore less competitive than India’s. MFN status, however, is not likely to have any impact on our auto-industry for the foreseeable future since MFN status does not mean that tariff rates will be brought down to zero. Currently custom duty and other taxes on imports of vehicles are more than 100 per cent, which is enough of protection. Import of second-hand cars is only allowed under special conditions and it is not likely that they would be imported from India. Also, it is likely that our government may place automobiles on negative list, which is under preparation.
Profit: What about pharmaceutical industry? India is one of the largest manufacturers and some of the medicines are much cheaper than those produced in Pakistan. How will our industry compete against Indian imports?
MA: Pakistan has a smaller pharma industry than India but it is making quality products. It is already exporting medicines worth over $150 million to 45 countries and access to the big Indian market will be an advantage. Furthermore, import of medicines into Pakistan is controlled through the Drugs (Import and Export) Rules, 1976. Pakistan is already allowing import of some high quality life-saving drugs from India. They are much cheaper than importing from Europe. Even such common medicines as Aspirin, Amoxillin, Ampicillin, Ciprofloxine, Famotidine, Laxotanil, Renitidin, whose import is not allowed are smuggled in, because they are cheaper. Allowing imports would only legalise the current situation. It will also bring down prices of essential medicines which would greatly benefit the poorer section of our society.
Profit: Can you mention the sectors where Pakistan will gain and where would India benefit?
MA: In my view Pakistan has comparative advantage in textiles sector in particular bed-linen and towels. Likewise, in several light engineering products such as surgical goods, cutlery and sports goods Pakistan would have an edge and can get a good market share. On the other hand, for heavy machinery, Indian manufacturers would be in an advantageous position. For auto-parts, India may replace traditional suppliers such as Thailand and Taiwan.
Profit: What about agricultural goods?
MA: In agriculture, it is likely to be a balanced picture. In some cases, such as citrus fruit, mangoes, rice and wheat, Pakistan may have an advantage as it enjoys advantage of better quality. On the other hand, India may have an advantage in several other agricultural products such as garlic, red chilies, capsicum, beans and soybean-meal. For most other products, it will vary from year to year depending upon harvest conditions. This will stabilise prices, bring down inflation and make these products more available.