In November 2011, the government of Pakistan announced its

decision to grant Most Favored Nation (MFN) status to India

This means that India, in principle, will enjoy lower tariffs
and fewer trade barriers in its economic relationship with
Pakistan.

Current trade volume is less than $3 billion, but some experts
estimate that a normalized trade regime could eventually
send the figure soaring to $40 billion.




Such projections take into account, in part, the large
volume of informal Pakistan-India trade, which not long
ago equaled that of formal trade, and is now estimated
at about $1 billion.

With more formal trade, according to an estimate from
2011, more Indian cotton, petroleum products,
telephones, cars, organic chemicals, and tea will flow
into Pakistan, while more Pakistani dates, jewelry,
medical supplies, and petroleum oils will surge into
India.

4

Trade refers to buying and selling of goods and services for
money or money's worth.
It involves transfer or exchange of goods and services for
money or money's worth.
The manufacturers or producer produces the goods, then
moves on to the wholesaler, then to retailer and finally to the
ultimate consumer.
Pakistan and India share a longest and one of the most
complex border with length of 2,900 km with each other

The relationship between both countries has seen
various ups and downs throughout the history.

. Talking about the trade ties between Pakistan and
India, the strength of the relationship depends on the
foreign policies of both the countries. When they are at
friendly terms, their trade volume increases to a greater
extend.

The upcoming government shows not only its eagerness to
ease the tension between both countries, but also expresses its
commitment on starting work on the economic and trade
fronts .
Pakistan and India have tremendous potential of trade.

No serious attempt has ever been made to develop and
strengthen a framework of terms and conditions of formal
bilateral trade between both the countries.


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In 2012, intensified trade diplomacy between Islamabad
and New Delhi yield idea range of achievements.
Early in the year, Pakistan abolished its positive list of
2,000 goods that could be imported from India, and
replaced it with a negative list of about 1,200 items that
could not be imported.
Islamabad pledged to eliminate this negative list
entirely by the end of 2012, thereby bringing the two
countries closer to a fully operational MFN regime.
In April, the two capitals launched a new integrated
checkpoint at the Attari-Wagah land border crossing,
generating promises from both countries that trade
through this sector would increase tenfold.
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In 2012, recognizing the significance of trade in the
Pakistan-India relationship, the Asia Program of the
Washington, DC-based Woodrow Wilson Center, with co-
sponsorship from the Wilson Centers Program on America
and the Global Economy.

With generous support from the Karachi-based
Fellowship Fund for Pakistan they hosted a conference on
Pakistan-India trade. The contributions in this volume were
originally presented at this conference.
Zafar Mahmood the first Pakistans commerce secretary at
the time of the conference offers an insiders account of the
events leading to Islamabads decision to grant MFN status to
New Delhi.

When the two sides restarted their Composite Dialogue
process in 2011 a breakthrough on trade may have seemed
unlikely.

The meeting resulted in India dropping its opposition to the
EU package, and both ministers agreed to pursue full trade
normalization. This visit, Mahmood writes, created a
conducive environment for Pakistan to move forward, and in
early November Pakistans Cabinet reached its MFN decision.

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The Pakistani government uses the NDMA nomenclature as
an equivalent of the term 'most favoured nation(MFN)' to
avoid political resistance at home.
Under World Trade Organization ( WTO) rules, every
member has to grant MFN status to other members. This
MFN status is part of a road map drawn up by the two
countries to normalize trade relations.
Pakistan had agreed to give India non-discriminatory
access in December 2012.So India accorded Pakistan MFN
status in 1996.
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Economists often say that free trade creates both winners and
losers. Indeed, numerous sectors and interests in Pakistan have
expressed strong misgivings about increased trade with India.

Particularly outspoken in its opposition is the Pakistani
automobile industry, which had more items on the negative list
(385, according to data provided in this volume) than any other
sector.

In late 2012, the chairman of the Pakistan Association of
Automotive Parts and Accessories Manufacturers warned that
local car parts makers will be hurt significantly by trade
liberalization because the nascent industry cannot compete with
Indias formidable auto sector.
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Ishrat Husain, who was the dean and director of Karachi
Institutes of Business Administration(IBA) discusses factors
beyond sectorial opposition that risk derailing the Pakistan-India
trade regime.




The opposition political parties in both countries, possibly
aligned with extremist elements, could take virulently anti-trade
positions that pressure Islamabad and New Delhi into supporting
less trade-friendly policies.
Finally, the powerful Pakistani and Indian media could take up
the cause of smaller industries that suffer from trade liberalization,
and create such venom that trade flows could be set back.
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On February 29, 2012, Pakistan granted India Most
Favored Nation (MFN) status, paving the way for a
normal, World Trade Organization (WTO)-consistent
trade relationship between the two largest economies of
South Asia. (India granted MFN to Pakistan in 1996.)

It would be a mistake, however, to take for granted
sustained trade growth following this announcement.
Pakistan-India relations are complex and many factors
can intervene to disrupt the smooth flow of trade and
other economic transactions.
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20
ISLAMABAD: Bilateral trade between India and Pakistan grew 21%
to $2.4 billion in 2012, as Islamabad reaped the benefits of trade
normalization more than the gains made by New Delhi, says the
Indian High Commission.

Ministry of Commerce and Industry India, which were released
here on Monday, the volume of bilateral trade recorded a net
increase of $410 million from April (2012) to March (2013).

Bilateral trade has increased to $2.4 billion, which may soar to $6
billion in the next two years if both countries decide to treat each
other equally.
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Regional trade, of which trade with India is a key component,
has to be seen in the context of Pakistans overall economic
growth objectives.

Pakistan needs economic growth of 7 percent or more for the
next four decades.

This is just one percentage point higher than the growth rate
Pakistan has achieved in several decades in the past, and only
two percentage points higher than the average growth rate
since 1947.
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Politically Pakistan and India are perceived as arch rivals in the
region , Since their independence , bilateral economic relations
have been effected by political factors.

With a vision to enhance peace and prosperity to flourish in the
region , the two countries are now progressing towards a closer
economic relation realizing the energy of bilateral potential.

India granted MFN status to Pakistan in 1996 under the WTO
agreement , which was not dully reciprocated by Pakistan.

Thus , the Pakistans Cabinet proposal to grant Most Favoured
Nation status to India and India Prime Ministers optimism for
gradually moving towards regional trade agreement.
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Pakistans exports to India grew 28% while Indian exports to
Pakistan increased 19%.According to an official statement
released by the Indian High Commission in Islamabad,
Pakistans exports to India in the last Indian financial year (April
2012-March 2013) grew 28% and reached $513 million.

The High Commission termed the 28% increase in Pakistans
exports impressive when viewed in the context of negligible
increase (0.3%) in Indias overall imports.

Indias exports to Pakistan in the same period increased $300
million, a growth of 19%. Total Indian exports to Pakistan stood
at $1.84 billion, putting the trade balance in favor of New Delhi.

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The growth in bilateral trade, especially in Pakistans exports to
India, reflects the positive effect of a number of steps taken towards
fully normalised trade relations, the High Commission states.

It added three bilateral agreements signed in 2012 in the areas of
customs cooperation, mutual recognition of standards and
addressing trade grievances were intended to further improve trade
environment.

In February last year(2013) while taking a giant leap forward,
Pakistan abolished the positive list containing only 1,956 tradable
items and enforced a negative list of 1,209 untradeable items until
both sides agree on absolute trade normalization.

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The manufacturing sector of any country bears significant
importance. And with Pakistans exports concentrated largely in
textile and semi-manufactures, the country needs to strengthen
this sector.
Since the foreign-currency dominated export prices for developing
countries are largely determined in the international market .But it
lesser than Indias exports manufacturing.
India has to grow in manufacturing led exports because we are not
a country very much endowed when it comes to some of the
natural resources which need for our economic growth particularly
energy.
India s manufacturing exports are far higher then Pakistan
exports due their economic growth . (As we shown in above figure
6)
A closer look on the concept of MFN treatment shows
that exceptions have existed, and have been exercised by
countries for their own national interest .

This decision may result to be a heavy price and risky bet
for Pakistan in the medium to long run.

There was definitely a popular endorsement of the peace
process. In the coming days, it is hoped that the
leadership of the two countries would re-start the process
and bring peace and prosperity to their people.
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