Since partition of British India in 1947, Pakistan and India have been actively engaged as rival in every almost every field. Both countries have fought three all out wars and many limited skirmishes. Both countries have been known as arch rivals in the field of sports. But when it comes to trade, the story is entirely different. Trade has been flourishing between both the countries for almost a decade now despite several ups and down in relations.
Pakistan is all set to grant ‘Most Favored Nation’ (MFN) status to India, a move that has been both praised and criticized by different trade bodies in Pakistan. India has already accorded MFN status to Pakistan back in 1996 but Pakistan failed to reciprocate the offer due to imminent threat to its smaller economy from Indian industry. Pakistan maintains a negative list of 1200 items which can’t be imported from India. Critics of the policy claim that once this negative list is abolished a massive flood of Indian goods especially consumer goods will flood Pakistani markets resulting into massive competition for local industry.
Presently, US and European Union are Pakistan’s largest trading partners but Pakistan has failed to acquire any foothold in emerging markets of China, India and South East Asia. By awarding MFN status to India, a huge market will be available for export of Pakistan’s value added goods including textile, cement and leather products. On the contrary, it can import coal, iron and life saving drugs at much cheaper rates from India.
Trade volume with India is likely to grow to $ 8 Billion in next few years. However trade surplus remains heavily in favor of India, Pakistan exported goods worth $264.9 million whereas it imported goods worth $1.74 billion from India during 2010-11. This heavy surplus coupled with flood of cheap goods may lead Pakistan into a troublesome situation. Pakistan can utilize the huge market in India to export its finished products while protecting its vital industries against cheaper goods from India. Cheap tea, spices, auto parts, tires, healthcare and pharmaceuticals can be imported from India rather than costly South East Asia and Japan. This can result into savings more than $1bn for Pakistan.
However there is a need to force Indian government to remove the trade barriers and abolish negative list on their side as well so that equal benefit could be achieved by Pakistani exporters.