Pakistan is on its way to normalising trade with India. The recent visit of Indian commerce minister to Pakistan and New Delhi’s support to the European Union’s special trade package for Pakistan in the World Trade Organisation will strengthen these efforts.
As part of the trade normalisation process, first the current Positive List for imports from India will be replaced with a Negative List. Subsequently, the Negative List will be phased out leading to grant of full Most Favoured Nation (MFN) status to India, a basic requirement of the multilateral trading regime.
At the time of the birth of Pakistan, India was its largest trading partner. In 1948 when the General Agreement on Tariffs and Trade (GATT), the WTO’s predecessor, came into being, both Pakistan and India became its members and granted each other MFN status. However, the bilateral trade relations were disrupted by the 1965 war and remained suspended till 1973.
When the trade was resumed, the MFN principle was disregarded by both countries and the trade was conducted on the basis of Positive List. The Positive List approach meant that only those items could be exported or imported which were on the respective lists. In 1995, the WTO was born and adopted the MFN as its constitutional principle.
Accordingly, India restored Pakistan’s MFN status meaning that imports from Pakistan, like any other WTO member, were allowed without any discrimination. Pakistan, however, continued to maintain the Positive List approach thus restricting imports from India. The Positive List was gradually expanded and presently it consists of 1963 products or tariff lines as they are technically called.
What is noticeable about the bilateral trade is that despite withholding MFN status, Pakistan continues to have trade deficit with India. In 2006-07, the volume of bilateral trade was $1.57 billion including $342.9 million exports from Pakistan and $1.23 billion exports from India with $893 million trade surplus for India. In 2010-11, the total trade had surpassed $2 billion.
However, exports from Pakistan came down to $264.3 million, while Indian exports went up to $1.74 billion thus giving Pakistan a trade deficit of $1.47 billion.