Suspension of trade: Pakistan move to have negligible impact on India
Financial Express (08/08/2019) - India had granted the MFN status, a jargon for giving equal treatment to all trade partners under the WTO framework, to Pakistan unilaterally in 1996.
Pakistan’s decision to suspend trade in response to India’s move to revoke special status of Jammu & Kashmir is unlikely to have any meaningful impact on New Delhi, due to the low level of bilateral trade, official and trade sources said on Wednesday. India’s exports to Pakistan already dropped 20.5% year-on-year in the first quarter of this fiscal to $452.5 million, or only 0.6% of our outbound shipments during this period, showed the latest official data sourced from the DGCIS. Purchases from Pakistan, too, collapsed 93.3% year-on-year in the first quarter of this fiscal to $7.13 million, not even 0.01% of our imports from overseas, mainly due to New Delhi’s imposition of a 200% duty on purchases from the neighbour following the withdrawal of its most favoured nation (MFN) status to Islamabad in the wake of the Pulwama terror attacks in February.
For Pakistan, though, the impact will be greater, as the neighbour’s purchases from India stood at over 3% in FY18. Islamabad’s latest move is part of its overall response to trim ties, including diplomatic ones, with India. “We are least bothered by Pakistan’s move. It was sort of expected that Pakistan would do such a thing. Bilateral trade as such is very low,” a senior government official told FE.
While our imports were expected to drop, given the massive duty, the fall in exports suggests Islamabad has quietly raised its non-tariff barriers for Indian products in response to New Delhi’s tariff war. India had granted the MFN status, a jargon for giving equal treatment to all trade partners under the WTO framework, to Pakistan unilaterally in 1996.
Importantly, between April 2018 and January 2019 (before the duties were raised), India’s exports to the neighbour had risen 22.1% from a year earlier to $1,768.7 million, while imports from Pakistan had inched up by 12.6% to $473.5 million, according to the data. While India’s export of cotton, the biggest item in FY19, crashed 71.4% to just $48.3 million in the April-June period of this fiscal, that of plastics dropped 24.6%. Exports of organic chemicals, however, rose 8.2% in the first quarter to $127.9 million. Together these three items made up for close to a half of India’s exports to the Islamic neighbour.
Federation of India Export Organisations president Sharad Kumar Saraf said the suspension of trade will hit Pakistan more badly as it is more dependent on India. “India’s goods exported to Pakistan has limited profile as Pakistan has not given MFN status to India and such goods have ready market in South and West Asia,” he added. Biswajit Dhar, professor at the Centre for Economic Studies and Planning, JNU, said while the broader trade is unlikely to get affected due to low volume, supplies of some farm items like fruits and vegetables to Pakistan through Wagah border will be stopped now.
Despite limited bilateral trade, the withdrawal of the MFN status in February, symbolically, has been seen as the strongest retaliation in trade yet, given the status was not revoked even after the Kargil war and the 26/11 Mumbai attacks. For its part, Pakistan hasn’t granted the MFN status to India and continues to trade with New Delhi with a negative list of 1,209 products. This means barring those products on the list, India can ship out other items to the neighbour. However, New Delhi’s retaliation may offer Pakistan an excuse to raise its negative list of tradable items with India. In 2012, Pakistan had committed to granting India the MFN status but retracted later due to domestic opposition.’
A senior government official had earlier said: “The decision to withdraw the MFN status and impose the punitive duty on imports from Pakistan was taken, keeping in mind broader national interest, and not short-term commercial gains. Pakistan is known to impose non-tariff barriers against us and they have done it in the past as well. In any case, the trade levels are low, so it (the fall) doesn’t hurt us in any manner. Ultimately, national security has to be of paramount importance.”
India had last reviewed the MFN status after the 2016 Uri attacks — which were traced to militant outfits based in Pakistan·but refrained from revoking it. In 2012, Pakistan announced the negative list, departing from its decades-old practice of trading on the basis of a positive list that had severely restricted prospects of Indian exports to that country.