08 December 2012

Most Favoured Nation Status to India catastrophic for Pakistani Agriculture

Dr. Mohammad Tariq Bucha

The government has planned to grant the Most Favoured Nation (MFN) status to India by the end of 2012. The farmers believe that such a basic shift in trade policy would require a significant amount of research and confidence of important stakeholders before working out specific modalities of liberalising trade relations with India.

Moreover, any such opening should occur in a phased and strategic manner to ensure that Pakistan’s agricultural and food security is not compromised. However, it is strange that the government is pursuing a reckless path to hasty trade liberalisation with India without consulting the farmers’ community.

Islamabad is currently maintaining a ‘negative list’ of over 1,000 items prohibited for import into Pakistan, but there is not a single agricultural item on this list. If approved by the federal cabinet by December 31, 2012, the ‘negative list’ will be replaced with a time-bound ‘sensitive list’ of about 100 goods with all other goods carrying 5 percent maximum tariff. The ‘sensitive list’ is likely to include only those items already on the ‘negative list’. Since there are no agricultural items on this list, this economically reckless oversight must be redressed.

The Pakistani farmers - small, medium and large - are of the opinion that a sudden liberalisation of trade with India, which ignores their legitimate interests and excludes agricultural goods from both the ‘negative’ and ‘sensitive’ lists, will prove to be suicidal for agriculture and ultimately the nation’s economy. It is in the interest of the government to give attention and support in the following context:

Pakistan must pursue a fair trade policy, rather than a hastily negotiated one-sided free trade regime with India. Agriculture should be forthwith removed from the ambit of this ill-planned trade regime.

India provides roughly $66 billion per annual subsidies to its agricultural sector. Pakistan’s entire GDP is roughly about $210 billion, and giving heavy subsidies to any sector will not be possible in the foreseeable future. Thus, agricultural goods must benefit from the protection of ‘negative’ and sensitive’ lists as well as technical regulations.

In India, a bag of urea sells for Rs 610; whereas in Pakistan, it is Rs 1,800 per bag. High Speed Diesel, a critical agriculture input, in India is priced at Rs 85 per litre against Rs 115 per litre in Pakistan. India also provides significant subsidies on indirect inputs such as electricity and seeds, both of which are almost free in India; whereas its rates in Pakistan have become extremely unaffordable. Pakistan also levies GST at 16 percent on all agriculture inputs, which are tax exempt in India. India’s average duty rate for agricultural goods is as high as 34 percent; whereas Pakistan’s average duty rate is half, i.e. as low as17 percent. Thus, India not only provides very large subsidies to help its farmers, but also erects high tariff barriers so that they are protected from competition, including agricultural exports from Pakistan. India maintains a minimum price support programme on 25 agricultural crops; whereas Pakistan has just one such agricultural crop, i.e wheat. Thus, the protection given by New Delhi to its agri-sector is significantly greater than Pakistan.

Even though India granted the MFN status to Pakistan in 1996, the balance of trade has heavily favoured it because it also imposed non-tariff and tariff barriers to deny access to Pakistani goods. Thus, Pakistan’s exports to India could not increase beyond $332 million since 1996-97; while on the other hand, even without being granted the MFN status, Indian exports to Pakistan have increased manifold, i.e. from $158 million to $2.0 billion during the same period. The ratio that was 80:20 in India’s favour now stands increased to 85:15. What more has been planned for Pakistan, is quite clear. Therefore, any knee-jerk and reckless opening of trade that does not protect our agriculture will favour India, even more to the detriment of the Pakistani economy.

In its negotiations with its Indian counterpart, the Pakistani team must insist that India lowers its tariffs on agricultural goods from Pakistan, which it can do bilaterally with respect to Pakistan, as per WTO rules.

Additionally, India has a myriad number of non-tariff barriers, which it imposes on goods that try and get access to the Indian market, particularly for agricultural goods. Before Pakistan grants the MFN status to India, it must demand that it remove most of its non-tariff barriers, which serve protectionist purposes.

High Indian subsidies and protectionist tariffs for agricultural goods would prevent Pakistani agricultural goods to be exported to India. We must include necessary agricultural goods in the current ‘negative’ and the planned ‘sensitive’ lists. If the agriculture sector is discriminated against by our own government in such a manner and not given the same protection given to industrial goods, it will force farmers to convert land to non-agricultural use leading to the closure of factories and shrinking markets. It will cause a total collapse of Pakistan’s economy with grave threat to its food security, thereby our sovereignty.

Liberalising trade with India through the Wagah route will inundate our smaller and more fragile markets. Farmers firmly believe that Pakistan and India should both benefit from a resumption of bilateral trade relations, but they support phased and measured trade liberalisation. But the cardinal principle that ‘mutually-beneficial bilateral trade must be fair in order to be truly free trade’ should not be ignored, which is enshrined in the WTO principles as well.

Any such change in policy must be transparent and be made in consultation with Pakistani farmers through different farming organisations, which are the major and important stakeholders of the agricultural sector in the country. Without a trade policy that affords protection to agriculture, granting the MFN status to India will be catastrophic for the tens of millions of people whose livelihood is based on agriculture. As is shown in the chart, India provides minimum support prices to 25 agricultural produce by an annual subsidy of $66 billion also.

The leaders in Islamabad need to wake up and not give away Pakistan’s food security and sovereignty just to please few vested interests. They must also take swift action to avert a situation that will lead to the devastation of our agriculture and economy.

The writer is the President of Farmers Associates Pakistan (FAP). E-mail: buchatariq@gmail.com

This article was published in 'The Nation' newspaper on 7 December 2012

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