The status of Pakistan’s grant of ‘Most Favoured Nation’ (MFN) to India is in doubt. While the foreign ministry has given assurances that the decision would be implemented, an actual decision is yet to be taken. This raises several questions. Why did Pakistan agree to grant India the MFN status? What has led to the delay in the implementation of this decision? Will this decision ever be implemented?
 
Pakistan’s decision to grant MFN to India is motivated by both economic and political factors. Given the asymmetric responsibilities India is willing to shoulder, this is a win-win situation for Pakistan. According to the Pakistan Business Council, bilateral trade is said to double over the next three years if this deal goes through.

Moreover, it will also help bring US$10 billion worth of illegal trade between the two countries, currently routed through Dubai, within the official channels. This is said to increase the annual GDP of Pakistan by 1-2 per cent. Increased production volumes increase Pakistan’s ability to beat down the price of imports critical to reducing import costs. Importantly, this would also mean a reduction in the import cost of energy-related raw materials, which may help reduce Pakistan’s energy problems. Finally, the traders, who comprise a large segment of Pakistani mercantile community will also benefit from the increased trade volumes that access to a larger market enables.

There could be two political motivations behind the granting of the MFN status. First, given that the establishment is under serious attack from all quarters within Pakistan, an economic surge would be seen, at least in the short term, as shoring up the status quo and boosting the morale of the Pakistani public. Second, given the increasing global and regional isolation of the Pakistani state, this provides vital strategic breathing space for Pakistan.

Despite all this, news emerged that the decision would not be implemented. Most of the opposition to this deal seems to have come from the industrialists, who cannot compete against Indian Economies of Scale and fear dumping. Moreover, India’s non-tariff barriers and protectionist policies are highly resented as well, being the main reason for the balance of trade being overwhelmingly in India’s favour. According to Huma Yusuf, a columnist for Dawn, ‘the pseudo backtracking’ is primarily to reassure the industrialists that their interests are also being taken into account. Further opposition to the implementation of the deal comes from the religious parties such as Jamiat Ulema-e-Islam (F) and Jamaat-e-Islami, who seem to have difficulty accepting ‘arch enemy’ India as the ‘most favoured’ nation.

It seems unlikely that such obstacles could prevent India from getting the MFN. The religious parties and the business communities have managed to delay the process, but are unlikely to prevent the decision from being implemented. The concerns of the latter are motivated more by practical reasons rather than any ideological factors and these could be resolved by properly negotiating the negative list. Similarly, as Yusuf states, the MFN could increase the bargaining power of Pakistan vis-à-vis India, thereby, placing it in a much better position to negotiate the removal of the non-tariff barriers and the high tariff rates on goods like textiles and agricultural products, which are of interest to Pakistan’s business community.

As far as the religious parties are concerned they are no longer as powerful as they used to be in the 1980s and 1990s. While they continue to adhere to their ideological opposition to India, the mainstream parties in Pakistan like the Pakistan’s People Party and Pakistan Muslim League (N) have been calling for improving ties with India. The climate in Pakistan towards India seems to be undergoing a change and there is a genuine desire to work towards reconciliation. This was evident in the return of the helicopter, which had strayed into Pakistani territory, as well as at the 2011 SAARC Summit in the Maldives, in which India and Pakistan pledged to work towards normalization of relations. 

The most important factor that seems to be working in favour of the MFN is the fact that it has the backing of the army. It would not have been possible for the federal government to have made any announcement regarding the MFN without the approval of the army, which continues to exert significant influence over Pakistan’s foreign policy, especially on matters concerning India. This means that the more difficult political process has been completed. The obstacles may delay the process but are unlikely to prevent the MFN from being granted to India.