India is likely to allow more items at a lower duty rate, liberalise the visa regime and start the process of drafting a preferential trade agreement to return Pakistan’s favour of granting a most favoured nation (MFN) status to India.
“The grant of MFN status is a big positive step in the trade relations between the two countries. We can now explore a preferential trade agreement, which would reduce duties on products of export interest of both countries,” a senior commerce ministry official said.
Sources said the government was considering allowing more textiles and garments, agricultural products and cement from Islamabad at lower duties to boost trade between the two nations.
Commerce minister Anand Sharma said: “Appreciate this positive gesture that Pakistan has taken and it will bring about a paradigm shift in mutual relations.”
The MFN status means that Pakistan will treat India on a par with its other economic partners.
Under the World Trade Organisation agreements, the MFN principle ensures that WTO members do not discriminate against one another, allowing all countries in the organisation to benefit equally from the lowest possible tariffs.
While India granted Pakistan the MFN status in 1996, Pakistan did not reciprocate as it feared that its markets would be flooded by Indian goods.
Pakistan has been insisting that India removes non-trade barriers against their goods. Quality standards and customs procedures have hindered the flow of Pakistani goods into India, officials of that country said.
Pakistan has a positive list of 1945 items that are allowed to be imported from India under the South Asia Free Trade Agreement, while it has a sensitive list of 1,169 items.
It is expected that instead of the positive list, Pakistan will now have a narrow negative list of about 200 items. Now a whole range of products other than those 200 items on the negative list could be exported from India on an equal footing.
The MFN status will benefit the export of textiles, cotton, vegetables, coffee, tea and spices from India.
Pakistan, on its part, is expecting India to remove non-tariff barriers that restrict imports from that country. Some of the measures include inspection, quarantine, testing and certification for products and perishable items.
Officials said efforts to accommodate the concerns of Islamabad on certification for cement, surgical equipment and quarantine issues would be considered positively.
Nisha Taneja, trade analyst with the Indian Council for Research on International Economic Relations, said, “It would give a boost to the trade relations between the two countries. And, to cement the ties, the two nations should go in for a bilateral treaty for investor protection to boost investment across borders.”
Stating that Indian products would not be able to flood the Islamabad market, she said, “China is the biggest trading partner of Pakistan and New Delhi would have to be competitive to get its market share.”
CII director-general Chandrajit Banerjee said, “Pakistan’s decision to grant MFN status to India will provide a boost to bilateral trade. It will also pave the way for economic integration of South Asia.”
A study said, “Pakistan can save foreign exchange of $1.5 billion to $2 billion if it imports items such as chemicals, steel, machinery, industrial equipment and plastics — which are now bought from far-flung markets — from India as these are available at competitive prices.”