As Pakistan looks set to offer the Most-Favoured Nation (MFN) status to India, some segments of the country have come forward to oppose such a move. There is talk of the implications such a deal could have on the Kashmir issue, and the ever-present accusations of the government ‘selling out’. Despite cumulatively having a startling majority in terms of land area, population size and GDP within South Asia, the inter-regional trade between the two countries currently only stands at 20%. Essentially the granting of an MFN status signifies an intention for increased trade with a given country, incentivised through trade advantages such as reduced tariffs on foreign goods. The important question to ask however is whether the opposition is politically-motivated by decades of propaganda-induced mistrust, or if there are economically relevant reasons for concern.
In theory, to trade with one of the largest and fastest growing economies of the world seems like an excellent proposition, where benefits can be realized in the form of an increased market size and cheaper imports including bulk imports of coal and cement. Also, it could account for and legitimize the inefficient and illegal trade being conducted through intermediaries in the form of Switzerland, UAE etc. effectively eliminating the middle man and benefiting consumers through the lower resulting costs.
However, there are realities that need to be addressed. India has a comparative advantage – relatively lower cost of production – for a number of commodities, which perhaps most worryingly for Pakistan, also applies to agriculture. Due to the heavy subsidization of agriculture within India translating into lower costs, they could potentially flood the market, and further exacerbate the already-precarious situation faced by the heavily taxed Pakistani farmers. Also, India has vigorously imposed Non-Tariff Barriers rendering their granting of any MFN status to Pakistan largely redundant. In addition to this, although India have proposed a bottom-up process to improve bilateral relations by improving trade, and cross-cultural integration, the relations between the two countries have traditionally been volatile, and the future implications of this negatively impacting a potential trade dependency is worrying. Finally, the current system in place, due to lack of infrastructure and a debilitative bureaucracy, is not conducive to the realization of large-scale bilateral trade. Although the extension of the MFN status to India does not necessitate the creation of a free-trade area, as is currently employed in Europe, it requires a coherent vision with regards to the economic implications of any terms of trade that may be agreed. Whether a government with a propensity for short-sighted policies, can tackle these issues holistically remains to be seen, but it is pertinent for them to ensure that any agreements are mutually beneficial in the long-term.