- Makes too much sense?
Since 1996, India has granted Pakistan the status of most favored nation, but Pakistan has, up till now, not made any progress in that regard. To cut the Gordian knot, we need to recognise the dynamics of the present era of globalisation as well as the mentality of the global consumer. For a global consumer, their need or want is of the utmost priority and therefore is more important to them than any ideology. In the globalisation era we find ourselves in today, all information about any product is ubiquitous. Consumers know what is out there and what they want. They are not willing to compromise. For instance, Pakistanis reproach the US for invading Muslim countries. Despite that, a Pakistani consumer would not shy away from purchasing quality products that come from the US.
In such a scenario, the imposition of a ban on free trade paves the way for the smuggling of contraband goods to flourish while at the same time promoting profiteering and market exploitation. When the smuggling sector is thriving, the government personnel deployed at the borders gain the opportunity to make money as well. As a result, those smuggled goods always reach the consumer, while greatly harming the national reserve.
If those same products were imported through legal means, the duty imposed by government would have to be paid. That money would go into the national treasury. Beyond badly affecting the foreign exchange reserves, when the black market flourishes, the public at large becomes part of that black market that ruins the social fabric and moral values. Simultaneously, smuggling creates channels that allow certain equipment used in acts of terrorism or in anti-state activities to sneak through border controls unchecked.
When two countries bilaterally declare themselves most favoured nations, the smaller country always reaps more benefits from trade and business relations than the country with the bigger population
Besides those previously mentioned, there are other ramifications connected with smuggling. For example, if there is an industry in your country which needs cheap, good quality raw materials, but the countries which export the raw materials have not been given the status of most favored nations; by compulsion those materials are then imported at a higher price. As a result, that industry cannot compete in the international market and must close down. For example, the business of precious stones studded in jewelry was once famous in Pakistan, but precious stones are not now being imported due to a ban. The people connected with this business are now facing economic losses. Presently, many products are still coming to Pakistan from India via Dubai, due to which both the consumer and the businesses are facing losses.
This protectionist trade policy has had an adverse impact on foreign direct investment (FDI) in Pakistan. Investors are wary of investing in an environment that is not conducive to bilateral trade with India. If Pakistan does not grant the status of most favoured nation to India for trade, barriers could be triggered from the Indian side, making the Indian market of more than one billion people inaccessible for prospective businesses. Foreign businesses would always choose to enter a larger market like India while losing the smaller Pakistani market for simple economic reasons. If Pakistan were to grant the status of most favoured nation to India for trade, then many international businesses would invest in Pakistan. While some products would also come into Pakistan from India, at the same time Pakistan would be able to export its manufactured products to the market of more than one billion Indian consumers.
Protectionism leads to complacency in businesses. Businesses do not focus on improving the quality of their products when the market competition is non-existent. The argument has also been presented that if Indian manufactured products are purchased then local manufacturers will suffer. It is important to note that every country does have a kind of industry in which it excels in terms of skills and craft, otherwise known as its “competitive advantage.” There are also certain abundant or unique resources available to a country which gives that country a “comparative advantage.”
For example, many areas in Pakistan’s southern Punjab produce a kind of mango that cannot be found in any other part of the world. This is a comparative advantage. India also has a demand for these mangoes and therefore will purchase this variety of mango at a high price as this is considered a luxury item. Similarly, the instruments and products manufactured in Gujrat, the industries of Gujranwala, and the sports gear made in Sialkot are famous all over the world. Their quality gives Pakistan a competitive advantage. If these products could find the Indian mega market, Pakistan would definitely be able to harvest economic benefit from this trade. Likewise, there are enormous tourist spots in the north of Pakistan, which could possibly increase the foreign exchange reserves.
Perhaps the most important fact to consider is that Pakistan has imposed a ban on the import of Indian products while giving a free hand to China to flood the Pakistani market with any and every product. This policy is illogical and highly counterproductive. Pakistan should allow both India and China to export their products here. This would create an environment of market competition between Chinese and Indian traders and manufacturers which would allow the Pakistani consumer to obtain quality products at cheaper prices.
Some people argue that trade doors should not be opened to India until the Kashmir dispute and other issues are settled. But, if Pakistan and India do not come closer to each other through trade, it is highly unlikely that the status quo will ever change. What has been achieved from the boycott against India that has been observed for the past 70 years? Einstein said, “The definition of insanity is doing the same thing over and over again and expecting different results.” To stop the insanity and resolve the remaining issues between the two countries, the boycott must end.
When two countries bilaterally declare themselves most favoured nations, the smaller country always reaps more benefits from trade and business relations than the country with the bigger population. Pakistan therefore has far more to gain from granting India, with its market of over one billion people, the status of MFN.