Indo-Pakistani Trade Pact: Pakistan's Win-Win Situation

On 26 September 2011, India and Pakistan engaged in a fresh round of trade diplomacy. Islamabad heralded the talks as the beginning of a 'golden era' in trade relations between the rival neighbors. It was the first such visit by a Pakistani commerce minister to India since the 1965 Indo-Pak conflict. Makhdoom Mohammad Amin Fahim led what was also the largest ever Pakistani business delegation to visit India.

Post discussions, it was firmly believed that trade negotiations between the two countries received a boost. Three main takeaways from the talks:

  1. India and Pakistan agreed to double bilateral trade to $6 billion by 2014.

  2. India withdrew its objection to the World Trade Organisation (WTO) waiver sought by the European Union (EU) for granting duty-free access for certain goods from Pakistan to expedite flood relief efforts.

  3. India and Pakistan agreed to loosen visa restrictions for businessmen on both sides beginning November 2011.

For the Pakistani side, the deal couldn't have gotten any sweeter. Islamabad managed to gain Indian support for the EU concession, a move the latter had objected to since 2010.

For India, the deal meant opening up her purse strings to Islamabad without getting what she really wanted in return - Most Favoured Nation (MFN) status. The only gain for India in this direction was that Pakistan finally recognised the need to grant the status.

Failure to achieve MFN status was met with disappointed reactions in Indian financial and media circles. For one, India had already given Pakistan MFN status back in 1996.  To many Indian observers, it seemed only right that Pakistan should grant India the same privilege in return for her agreement to the WTO waiver.

On the Pakistani side, the media oozed optimism, even calling the trade pact a win-win situation for Pakistan.

Some former diplomats believe normalization of trade ties could mean greater exchange of goods across the Line of Control (LoC), the de facto border between the two nations that runs through the disputed state of Kashmir.  But it is naive to believe that improving economic cooperation can soften an enduring rivalry as deep as the one between India and Pakistan.

Most importantly, Kashmir, and overall, Pakistan lack the secure, stable environment which is necessary to encourage investment and overall business development.

There is hesitancy in India to predict how much the average Indian businessman would risk investing in an unstable Pakistan. To add fuel to fire, just days after the talks wound up in New Delhi, China opted out of a $19 billion deal in the southern Sindh province citing security concerns.

On the other hand, Pakistani traders benefit immensely. India shares business needs and interests which they can readily meet, India provides a secure market for Pakistani goods.

So, however many multiple entry visas may be granted to either side, it would be difficult for Indian traders to establish as secure an investment environment in Pakistan as exists for the Pakistani trader. Further talks between the commerce secretaries next month would probably shed some light on how to tackle this bleak situation. Verbal reassurances from the Pakistani establishment may not suffice

Recent reports from Pakistan indicate steps are being taken toward normalizing trade ties with India. The administration has already called for recommendations to its negative list. Speculation is also rife on both sides of the border that it is only a matter of time before India is granted MFN status.

But even as the signs seemed relatively positive, news confirming Pakistan's worst fear arrived - a strategic partnership between India and Afghanistan. The incident caused 'great heartburn' for Islamabad which needs New Delhi to further trade and save its plunging economy, even as it works to counter the latter's power projection efforts in South Asia. The United States’ tougher stance on aid also left Pakistan upset and stuck exploring new options.

Come November, will a cornered Islamabad deliver on MFN status as promised? If not, this trade pact will be reduced to just a ‘feel good’ deal - nothing more than a photo opportunity for the embittered neighbors.

Sumitha Narayanan Kutty is an editorial assistant for the online section of the Georgetown Journal and a student in the MA in Security Studies Program at Georgetown University.