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Pulwama terror attack aftermath: India revoking MFN status for Pakistan won't mean much to Islamabad

Islamabad: As India announced it will revoke the Most Favoured Nation (MFN) status for Pakistan in the aftermath of Pulwama attack, Pakistani authorities as well as exporters believe the move is unlikely to disturb Pakistan, given the volume of bilateral trade between the two South Asian states.

Volume of bilateral trade between Pakistan and India was recorded at $2.03 billion in 2016-17. While Pakistan imported goods worth $1.70 billion from India, volume of its exports to its neighbour remained at $334 million. The $1.36-billion trade imbalance was in favour of India.

Ijaz A Khokhar, former chairperson of Pakistan Readymade Garment Manufacturers and Exporters Association, says India has never been a favourable destination for Pakistani goods, and hence, high tariff or revoking MFN status will have little impact on Pakistani exports.

“Revoking of MFN status isn’t bad news for Pakistani exporters. Volume of bilateral trade between two neighbours is too low. Also, balance of bilateral trade favours India. In any case India’s withdrawal of MFN status isn’t bad news at all,” Khokhar says.

 Pulwama terror attack aftermath: India revoking MFN status for Pakistan wont mean much to Islamabad

Representational image. Reuters

A senior official in Pakistan’s ministry of trade and industries says India was yet to inform them about its decision of revoking MFN status to Pakistan.

Pakistan government has not yet reacted to India’s withdrawal of MFN status. Abdul Razak Dawood, advisor to the prime minister on commerce, textile, industry and production, and investment, declined to comment when approached.

While the neighbouring country may not see much of an impact of withdrawal of MFN status, the move will hurt exporters of leather hides and cheaper fertiliser variants to India. Likewise, Pakistan’s cotton industry will also feel the heat in absence of cotton yarn and other raw textile material exported by India. Lack of cheaper varieties of pharma products and machinery can tease Pakistan as sourcing these goods from elsewhere will not be cost effective.

“Pakistan’s textile industry may be in a fix if India imposes ban on export of cotton bales to Pakistan. But, it can find alternative easily,” claims Khokhar.

Data collected from Pakistan’s Bureau of Statistics reveals that Pakistan’s top exports to the world include home textiles ($3.95 billion), cotton fabrics ($3.49 billion), knitted garments ($2.51 billion), woven garments ($2.46 billion), cereals ($1.75 billion), articles of leather ($0.631 billion), sugar and confectionary ($0.511 billion), medical and precision equipment ($0.410 billion), fish ($0.406 billion) and cement ($0.385 billion).

The above-mentioned products make 80.46 percent of Pakistan’s total exports. Indian market has never been a good destination for Pakistan goods. Despite the odds, like skirmishes across border and diplomatic constraints, Pakistani textile products make way to Indian market. Among Pakistan’s exports to India, home textiles stood at $1.18 million, cotton fabrics at $1.13 million, knitted garments at $1.29 million, woven garments at $2.69 million, articles of leather at $0.920 million, sugar and confectionary at $0.819 million, medical and precision equipment at $11.78 million, fisheries at $0.166 million and cement at $87.18 million.

According to Pakistan’s bureau of statistics, bilateral trade between Pakistan and India had increased by 6 percent in 2017-18 to $2.4 billion, with $1.9 billion imports from India. Goods worth $500 million were exported to India.

Currently, majority of trade between India and Pakistan is routed through UAE. Singapore is another route. According to independent media reports, volume of trade between Pakistan and India either through the UAE or Singapore stands at $3 billion.

Following withdrawal of MFN status, trade diversion is likely to increase.

A World Bank report revealed last year that Pakistan and India could increase volume of bilateral trade to $37 billion by removing barriers. Given the escalated tension between the two South Asian neighbors following Pulwama attack, this volume is likely to go down.

“I don’t see improvement in bilateral ties between Pakistan and India. Volume of bilateral trade is expected to decrease in such a hostile environment,” says Sohail Iqbal Bhatti, an Islamabad-based expert of economy and finance.

India had granted MFN status to Pakistan in 1996. Since then, Pakistan has been enjoying benefits of lower tariffs on its exports (mainly on textile, leather and fertiliser products) to India. Ironically, it continues to impose higher tariffs on its imports from India than it charges other countries while also restricting trade through land routes.

Following the Uri terror attack in 2016, India had reviewed the MFN status to Pakistan. However, it refrained from withdrawing it.

(Author is an Islamabad–based freelance journalist and a member of 101Reporters.com.)

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Updated Date: Feb 16, 2019 19:44:50 IST