Islamabad

Revisiting Possibilities

The question of restoring trade with India can be considered within certain parameters.

By M. Abbas Raza | April 2022


The advisor to the Prime Minister on Commerce, Abdul Razak Dawood, gave a very confusing and whimsical statement on February 20, 2022, saying that as far as the Ministry of Commerce was concerned, its position was to do trade with India and it should be opened now. The advisor did not make it clear whether by opening trade with India did he mean grant of Most Favoured Nation (MFN) treatment or restoring trade as of August 8, 2019. It may be recalled that the Ministry of Commerce suspended the trade with India on August 9, 2019.

Grant of MFN and trade with India has always been a contentious issue for all governments in Pakistan. Many time, the decision to grant MFN status was withheld just before its announcement. The issue has never been economically and legally debated and a solution of Kashmir first, has always been the basis of decision. However, India unilaterally granted MFN status to Pakistan in 1995 - Pakistan has been regulating trade with India through various lists, based on tradable items and then by maintaining a negative list. However, Pakistan suspended trade with India after revocation of Article 370.

Apart from the advisor, some international organizations are emphasizing trade with neighbouring countries. Even domestic circles are advocating opening of trade relation with India. The issue, however, is extremely complex and needs to be decided prudently, considering all legal and economic implications.

Pakistan and India both being part close to Britain, got accession to the General Agreement on Tariffs and Trade (GATT) in 1947, now called GATT 1994. Since the two countries had long constituted one economic unit, GATT has a special provision for the two countries, which reads “Taking into account the exceptional circumstances arising out of the establishment of India and Pakistan as independent states and recognizing the fact that they have long constituted an economic unit, the contracting parties agree that the provisions of this Agreement shall not prevent the two countries from entering into special arrangements with respect to the trade between them, pending the establishment of their mutual trade relations on a definitive basis.”

At the Review Session of 1954-55, the need for this provision was considered and it was retained at the request of both the countries. Since then neither Pakistan nor India has approached GATT / WTO for rescission of this clause.

MFN Treatment is one of the general principles of GATT 1994 covered under its Article I, which lays the principle of non-discrimination amongst the WTO Members with respect to (i) customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, (ii) the method of levying such duties and charges, (iii) all rules and formalities in connection with importation and exportation, and (iv) advantage, favour, privilege or immunity granted to a WTO member to any product originating in or destined for any other country and has to be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other WTO members. However, some exceptions to the provisions of Article-I covered under various GATT Articles include (i) the enabling clause that includes (a) Generalized System of Preferences (GSP), (b) differential and more favourable treatment in respect of non-tariff measures, (c) arrangements among developing countries as a whole or among a few of them on tariff preferences, and (d) special treatment of the least developed countries in the context of general or special measures in favour of developing countries, (ii) Free-Trade Area and Customs Union under Article XXIV, (iii) Frontier Trade Advantages under Article XXIV. (iv) Government Procurement, (v) General Exceptions contained in Article XX, (vi) Security Exception in terms of Article XXI, (vii) Trade Remedy Laws, and (viii) Plurilateral Agreements.

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The writer is former Chairman National Tariff Commission Ex- Consultant NAB and the World Bank. He can be reached at abbasraza55@gmail.com

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