WTO. MFN. SAPTA. These are the new buzzwords that have suddenly become topics for hot and emotional debate and discussion. Normally, these initials and what they stood for would have passed on without any fanfare except at some ho-hum seminar where the pros and cons would have been highlighted by resident experts and then gradually would have become a part of the business and industrial lexicon. However, the reason they are now a source of controversy is that all these have become linkages in this country’s relations with an avowed foe. It’s time for trading with the enemy, a hostile neighbor, a burgeoning military and economically strong entity, a religiously revived juggernaut, and a nation that over the last nearly five decades has bamboozled the aspirations and protestations of millions of denizens of Kashmir.

Trade with India is about to take new proportions and the low-key bilateral trade of over US$ 100 million is perceived to become a high-profile activity between the two neighbors as there is conformity in views of those for and against this issue that there will be a blitzkrieg in the two-way trade. At the same time, Riaz Khokar, the outspoken Pakistany High Commissioner in New Delhi, estimates the present trade thru non-official channels to be over US $ one billion. That figure, if even 75% true, means a huge flow of goods between the two SAARC countries.

Nevertheless, whatever the figures, whatever the means, and whatever the items, there are issues that have to be elucidated, defined, and agreed upon, before an upsurge in trade as visualized, becomes a reality. The nearly fifty years of distrust, the three major wars, the resurgence of parochialism, fundamentalism, and fanaticism, has levied a big toll in the relationship between Pakistan and India. The daily harangues of the politicians, the venomous tirades of the clergy and the politico-religious activists, and the serious concerns for the national security parameters by the armed forces of both countries, have ensued into a scenario where the policy-makers have to tread on delicate toes if there has to be a normalization of trade relations between the two adversaries.

The issue has taken on an emotional frenzy because, apart from the usual rhetoric, the term Most Favored Nation carries serious connotations for the large majority of people. This misconceived nomenclature is another American euphemism that has evolved thru a process of optimizing and glamorizing the various aspects of everyday life. Just like calling a janitor a sanitary engineer or designating the doorman as superintendent of internal security, this notion of MFN becomes quite difficult to fathom, especially when dealing with a traditionally hostile neighbor, and more so because Kashmir is a burning inferno where atrocities are monumental.

However, times have changed rapidly. The global trade regime is taking on a different outlook. The old and ancient way of conducting international business has transformed into an open but exceedingly tough, tenacious, and top-notch activity. Gone are the days when countries zealously guarded their borders from the onslaught of foreign goods and services if these directly affected the domestic producers or caterers of these goods. The precious foreign exchange was conserved rather than squandered. The policy-framers ensured that the foreign goods and raw material were subjected to a host of duties, levies, and surcharges. The advent of 1996, however, has brought into the land and seas the World Trade Order. Political differences and armed conflicts are making way for closer economic and business ties. Ideology is also taking a back seat to the haste in bilateral trade and commerce.

One feature of this new order is that countries who are traditionally on the opposite sides of a contentious issue or who are averse to any normalization of relationships or who are keen competitors on the world export trade, have to readjust and confirm to the new realities. Pakistan and India are two such countries. There is no doubt that trade will increase and there is no way anyone can put a spanner into Pakistan’s plan to grant MFN status to India. The roadblocks, if any, will be removed and will have to be removed, if Pakistan is to continue the desired progressive journey on the global trade highway.

One aspect of this bilateral trade will be the effect on the largest category of Pakistan’s exports, that is, the textile industry. There is already a growing lobby that is inimical to opening up the domestic market for goods, machinery, and raw material for the textile industry. There are apprehensions that the Indians will flood the market, or resort to dumping, or to systematically take over the share of the domestic producers, thus rendering this premier Pakistany industry to ruins or non-competitiveness. The textile situation needs to be looked into. There are five areas in which the country can import from India.

The first sector is the raw material for certain industries. The Pakistany filament yarn producers can procure the required polyester chips from suppliers across the border. Initially, this will not put a dent in the marketing strategies or sales of the domestic producers because there is a perennial shortage of this item here and the shortfall is conveniently imported, anyway. However, the filament yarn producers are gradually venturing into increasing the capacity for manufacturing polyester chips, either thru expansion in the existing units or setting up of new plants. In the future, there will be some concern for these plants, but the projected demand for polyester and the opportunities for export of polyester yarn or fabrics will counter any expected inroads by Indian polyester chips producers. At the same time, the US$ 400 million ICI plant at Port Qasim and the planned Dewan Salman project to make PTA, a raw material for chips, will boost the domestic producers’ capability to be cost-effective and competitive.

Another item of import is the requirement for fiber. India can be a major supplier for viscose staple fiber, acrylic staple fiber, and also polyester staple fiber. There is surplus capacity in India with regard to the above three items. India has about 10,000 tonnes surplus in viscose staple fiber, about 70,000 tonnes in acrylic staple fiber, and over 175,000 tonnes in polyester staple fiber. In fact, unofficially, the above three items are already being transshipped to Pakistan thru third countries.

Dyestuffs and chemicals from India can find a readily available market in Pakistan. India produces over 32,000 tonnes of dyestuffs and its exports are in excess of Rs 8 billion. Since, this field involves high capital and skilled manpower costs, since the domestic market is still smaller as compared to India, for example, since Pakistan is already importing expensive dyes from Europe, and since a lot of dyes from India have become a common item of usage in the local textile processing factories, there is ample scope for an increased volume of purchases from India because these dyes have already been tried and tested in Pakistan.

The second sector is the supply of yarn to the Pakistany weavers and knitters. The initial fear is that the sacrosanct local spinning industry will become a victim to the inflow of Indian yarn into the market. The rationale behind this is that it will not be able to compete, as this industry is reeling and tottering due to disastrous three years of cotton crisis. The statistics reveal that although nearly 8.3 million spindles are installed, the utilization capacity is only around 71%. The imbroglio over the export of raw cotton, unrestricted exports as per APTMA, the high bank interest rates, the exorbitant and ever-increasing electricity tariff, and other overloading thru duties, etc., have all mustered together in increasing the cost of the final product. Nonetheless, there are certain aspects that are worth considering. First of all, there is a need to divert product mix from total emphasis on cotton to other man-made items. For example, there is an imperative need to initiate and popularize the use of synthetic yarn. The local producers of fabrics from blended spun yarn or filament yarn may be at an advantage for they may be able to source suppliers from India. As it is, the suiting manufacturers have had a hard time in getting good yarn and thus have depended upon the imported yarn to manufacture quality suitings. Yarn import from India will not affect the local spinners because, in the words of Anwar Tata, the supremo of APTMA, this trade with India will foster healthy and fruitful competition between the spinners of both the countries. Moreover, he believes that this will not create any major headaches for the local spinners.

The third sector is fabrics. Again there is some suspicion that since India produces a huge quantity not only for the domestic 910 million consumers but also has an edge over Pakistan in the international market, there will be a massive overflow of fabrics into this country. This apprehension is derived from the fact that India will be able to penetrate the market thru introduction of specialized fabrics like khaddar, muslin, and other such novelties. At the same time, there is this fear that the common latha will also find its way into this country. Although there will be a demand for specialty products, the general feeling among the fabrics manufacturers is that even though the government has since 1995 liberalized the import of fabrics from foreign countries, the impact if any, has been inconsequential. The local fabric producers can easily cope with Indian imports. Tariq Sayeed Saigol, President LCCI, stated matter of factly that the Pakistany fabrics are superior then the comparable Indian product.

The fourth sector is the textile made-ups, especially garments and sweaters. India has become a major producer and supplier of fashion apparel to the world. Moreover, India itself has opened it borders to foreign brands. There is the possibility that there will be an increased import of apparel into the country. However, this would generally be again in certain specialized items. At the present moment, the inflow of Indian garments thru the unofficial channels, such as thru the professional couriers, or "khepias", is not something to write home about. There is a demand among the rich clientele for Indian boutique items, such as those made by Glitterati or Sheetal. This is also evidenced from the fact that Sheetal usually sends over 500 copies of its annual catalog to Pakistan every year. Of course, the Pakistany boutiques regularly clone the Indian fashions unabashedly and with impunity. There is a demand for smuggled Indian khaddar products for waistcoats and sherwanis too. Sweaters can be imported also but there will be tough competition from the smuggled Iranian woollens that have succeeded in capturing a good segment of the middle class market. Furthermore, the Pakistany brand names are very popular and have successfully created a niche for their products thru aggressive advertising and affordable prices.

The fifth sector is textile machinery. India’s textile machinery industry is over 40 years old. It comprises over 100 units producing complete textile machines and over 300 units manufacturing components and accessories. The current turnover is in excess of Rs 15 billion per year. Numerous Indian companies have entered into collaborations and joint ventures with leading international textile machinery manufacturers. Some of the reputed foreign companies are Reiter, Howa, Toyoda, Sulzer Ruti, Regiani, Stork, Barmag, Schlafhorst, etc. India exports over Rs 2 billion worth of textile machinery. This includes machinery exported to Switzerland, UK, Holland, and Germany for supplies to third countries. Some of that Indian origin machinery has also come to Pakistan. Importing machinery from India has valuable advantages. For example, Indian prices are substantially lower by over 30% compared to European or Japanese machinery. Since India has a sizable capacity, shipment is possible at an earlier schedule. A depreciated Indian rupee is a favorable element too. All these factors can be of advantage to Pakistan because the domestic industry can get premium facility if it imports textile machinery from across the border.

The points presented above link to the import of textile-related items in Pakistan. These are necessary to allay any misgivings about the perceived tidal wave of imports as espoused by the protectionists or those who stubbornly believe that there is no justification or compulsion in trading with India even though the country may have been pressured into signing the WTO or SAPTA, for that matter. There is no substance in the oft-mentioned theory that Pakistan will become an economic satellite of the stronger and bigger India. Goods from India being cheaper, being in close proximity, and being in demand, will find a readily available market. However, there is no way that Pakistanys will be forced to buy Indian goods except if they are better and comparable than the presently imported goods from other countries. On the other hand, what can Pakistan do to export textiles to India? It seems that there is not much this country can offer because India is self-sufficient in nearly all respects. Of course, there will be news reports like the one about two top-of-the-line Pakistany designers, Maheen Khan and Faiza Samee, penetrating the Indian bourgeoisie market with their creations. There will be a good market for value-added fabrics like suitings and shirtings but that all depends upon the cost factor, especially the cost of inputs.

Take the case of suiting fabrics. The best available cloth is made from imported yarn, both filament and blended spun. However the import duty is still exorbitant and has stunted the growth of this very important industry. This has also resulted in smuggling in of cheaper fabrics from Dubai and Singapore. The present landed cost of yarn comes to about 84%. The duty structure on yarn needs to be reduced to not more than 10% to enable it to compete effectively. If this is agreed upon by the government, there is a sure chance that Pakistan can export a lot of value-added suitings to India. Shirting fabric can also find a decisive market across the border, too.

The bottom line is that trade with India can and will prove beneficial to both the countries. Pakistan will be able to procure cheaper goods, raw material, and machinery, because the Pakistany importer will not have to then import from expensive suppliers in Europe or the Far East. However, the Pakistany manufacturers demand a level playing field. The policy-makers in Pakistan should now act and not react. In 1995, import duties on fabrics and garments were reduced but no such benefits accrued to the domestic manufacturers. This is one opportunity that the bigwigs in Islamabad should not miss. They should immediately remove all anomalies and bottlenecks that will hinder the manufacturers’ position to go headlong against the Indian products. Pakistany products are much better in many respects, especially in suitings and shirtings. The advantage must not be lost. At the same time, the government must maintain the macro-economic parameters that are necessary to deal with India on an equal footing. Inflation must come down. GDP growth rate must be maintained at 6-7%. There is a need to rationalize the high mark-up rates on bank loans. All regulatory duties and levies be withdrawn immediately. Infrastructure rates should not be increased for a period of two years. Duties on yarn, on machinery, and on raw material for producing yarn and fiber, be either zero-rated or, at the most, it should be ten percent.

The government of Prime Minister Benazir Bhutto has held up the status of MFN for India until India withdraws all subsidies to the manufacturers there. This is a right, albeit short-term move. The MFN will be accorded very soon. Maybe then steps will be initiated by both the countries to simmer down their hostilities. Maybe the color of money will spruce up pragmatism and the authorities on both sides will sit on the negotiating table to come up with a solution for peace and harmony. Hopefully Bal Thackeray and whoever is his counterpart in Pakistan will fade away. And, if the hawks on the Pakistan side still want to keep a check on India, maybe the Defense Ministry can put in an order for the Prithvi, Agni, and the Akaash missiles. Then India might think twice before aiming these missiles onto Pakistan.

Meantime, the government should immediately issue permission to India to open its Consulate in Karachi so that the citizens of Karachi, including the industrial and business community, can be saved from the trouble of spending time and money in going to Islamabad to get their visas.

Finally, for those who are against any normalization of trade, the words of T.B. Macaulay are pertinent. He says that "free trade, one of the greatest blessings which a government can confer on a people, is in almost every country unpopular."

(Presented at the seminar on PAK-INDIA TRADE ---- ITS IMPACT ON NATIONAL ECONOMY, organized by Karachi Chamber of Commerce and Industry at Avari Towers, Karachi, on January 20, 1996)