MFN status: Don’t expect too much

Despite the Pakistani information minister excitedly announcing the decision to grant ‘Most Favoured Nation’ status to India last week, a degree of confusion still persists.

Even though the Pakistan foreign office spokesperson, while refuting the allegations of a second thought, categorically stated that ‘Pakistan is not backtracking’, evidently there is a shift in Pakistan’s present position.

The latest statement of the Pakistan Prime Minister that the “cabinet’s decision was in effect about normalisation of trade ties between the two countries which would eventually culminate in granting the MFN status to India” in comparison to the earlier straightforward statement of “granting MFN status to India” has only added to the confusion.

Irrespective of the ambiguities, it’s expected that eventually good sense will prevail and the two neighbours may be able to restore their normal trading ties, in near suspended animation since 1965. This is long overdue. Prime Minister Monmohan Singh rightly pointed out that, “I think it is nearly 17 years ago when India gave the most favoured nation status to Pakistan unilaterally and Pakistan has taken so much time.”

In fact, the Pakistan People’s Party government ever since assuming power in 2008 was favourably inclined to improve relations with India. If President Asif Zardari had had his way, he would have announced this decision way back in 2008. However, the civilian government in Pakistan traditionally has very little say in matters related to security and foreign affairs; the army sets the agenda particularly vis-a-vis Pakistan’s relations with India.

For this reason, while announcing the decision Pakistan’s information minister had to pointedly mention that all ‘stakeholders’ — read the army — are onboard. Pakistan still looks to be dragging its feet; it’s only due to the internal bickering. Not only the army, but the manufacturing industry in Pakistan is also apprehensive that the local industry in Pakistan cannot compete with India’s relatively advance industry: with Pakistan granting MFN status to India, Pakistani markets will be flooded with cheap exports from India.

On the contrary, traders and especially consumers in Pakistan are elated with the prospects of benefiting immensely with the free movement of goods. The potential of trade between India and Pakistan is approximately $6 billion to $8 billion a year. While India and Pakistan were and are still arguing over the issue, the illegal trade primarily routed through Dubai is estimated to be $3bn-$4bn a year.

There is many a slip between the cup and the lip; such is the nature of Indo-Pak relations. Unless an agreement is not clearly inked on paper rather engraved on stone, a simple media announcement does not carry any conviction.

Moreover, expectations built around the notion that free trade will ultimately transform Indo-Pak relations radically, is also much hyped.  Presently China is India’s second largest trading partner; during 2010-11, the two Asian giants traded goods worth $60 billion. And both are aiming to achieve an annual target of $100 billion trade in few years time. Yet the increasing Indo-China trade has not been able to put brakes to the ever growing arms race in the region.

Just last week, China is reported to have deployed ‘four new nuclear capable ballistic missiles, including one that can be launched from submarines (SLBM).’ China’s militarily overreach has practically forced India to expand its military muscle that may eventually cost it tens of thousands of crores.

Ideally, free movement of goods and people should integrate the region, ultimately leading to dilution if conflicts, if not fully resolving the conflict. The growing fears of getting isolated in the region due to the increasing tensions with America may have pushed Pakistan for a trade detente with India. The emerging Great Game in Afghanistan may dramatically alter the geopolitics of this region.

If peace in Afghanistan was the real motive, it would have been easier for all the regional powers including India and China along with America to join hands. This is not the case; in a bitter power struggle Afghanistan has been turned into a battle ground. On the one hand, the US wants greater integration of South Asia with India playing a pivotal role to ward China’s growing influence.

Conversely, Pakistan and China are keen for America to leave the region. China wants to preserve its regional hegemony; Pakistan is sacred due to the growing status of India. In the evolving new Great Game the risk of regional tensions flaring up has increased manifold.