“INTERNATIONAL BUSINESS” INTERNATIONAL POLITICAL ISSUES GROUP – 6 Hammad Tayyab Askari S. M. Ailya Hasan Rimsha Khalid Malik Maria Aleem Usman Ali Alvi SUBMITTED TO Sir Hasan Raza
Issue # 1: Pakistan’s Most Favored Nation Status to IndiaTrade relations between India and Pakistan appear set to improvesignificantly with Pakistan likely to grant India Most Favored Nation(MFN) status. The potential gains from easier trading relations are considerable for both countries. In 2009-10, official trade between the two stood at $2 billion. Studies suggest this volume could be much higher,absent formal and informal barriers. For instance, a recent SAARC reportestimates trade potential to be $12 billion.What exactly does MFN status mean?A level of status given to one country by another and enforced by the World TradeOrganization. A country grants this clause to another nationif it is interested in increasing trade with that country.Countries achieving most favored nation status are given specifictrade advantages such as reduced tariffs on imported goods.Special consideration is given to countries that are classifiedas "developing" by the World Trade Organization.Where will the gains come from?The gains are likely to come from existing markets as well as new ones. The former includesinformal (illegal) trade, conducted through cross border smuggling and personal baggage — andaccording to some estimates, worth $13 billion. It also includes trade to the tune of $3-3.5billion conducted through third-parties, such as Dubai, since direct trade is difficult. Thepotential for new markets is tremendous. For instance, a Government College University studysuggests expanding Pakistan’s light engineering sector. The same study suggests that India has arelative advantage in bicycle production, which it could export to Pakistan. Additionally, as FICCIsecretary–general, Rajiv Kumar notes, if Indian goods are permitted to transit through Pakistanand access Central Asian markets, then traders in Haryana, Punjab, Himachal Pradesh andNorth Rajasthan stand to gain substantially.Two common misconceptions• Indian goods will flood Pakistani markets and ruin local producers: WTO provisions allowmembers to impose safeguards restricting imports (for temporary periods) should such importsunfairly or seriously injure domestic producers.• India and Pakistan’s political tensions will defeat smooth trade efforts: History suggests oldenmities can be overcome by trade. Consider the end of the China-Taiwan fray, and theconcomitant increase in trade from $8.1 billion in 1991 to $100 billion in 2010, as well as the
US-Vietnam bilateral trade agreement in 2001, resulting in the US being the leading investor inVietnam today.What needs to be done now?• Liberalize the visa regime for businessmen: Currently, business visas granted by India toPakistani nationals are city specific, single entry and short duration. This limits what can beaccomplished in one business trip. In this context, the recent report that India is consideringmoving towards a Preferential Trade Agreement with Pakistan and that a liberalized visa regimewould be one of the first steps is particularly encouraging.• Improve infrastructure, including warehousing facilities for perishables, better rail and cargotrain services, and air links.• Ease restrictions, such as the number of hours or the day of week when official trade acrossborders can occur. To counter Indian threats after Most Favored Nation status Makers can use Trade Defence LawsThe manufacturers can use Trade Defence Laws available in Pakistanto effectively counter the Indian threat following the MFN status toIndia, stated WTO experts on Monday.“To effectively resist the Indian cheaper goods threat, Pakistan’s industryneeds to use Trade Defence Laws in Pakistan such as Anti Dumping DutiesOrdinance, Countervailing Duties Ordinance and Safeguards Ordinance.They also stated that the laws could even be pressed into service if there was athreat of injury to the industry,” observed the experts at a seminar held here atLCCI on Monday.Mehnaz Shiraz, a WTO expert, said that the domestic industry is still notprepared for competition with the Indian industry after 16 years of signing up on the WTO. Theindustry is still trying to shy away from its commitments under the WTO with India, she added.She also stated that the terminology of ‘Most Favoured Nation’ used in the WTO area was amisnomer as the term meant that every trading partner will be given equal treatment and ifconcessions have been offered to one WTO member, it must be offered to all other members.She added that India had already given Most Favoured Nation status to Pakistan in 1996 butimposed Non Tariff Measures such as product standards, custom procedures, licenses,inspections. If government was now going to give the status of MFN, it could make use of thesame exception clauses. She also added that the private sector needed to revive its associationsand chambers should come up with a joint strategy for the entire sector.
Recent DevelopmentsPakistan on 7th March, Wednesday moved closer togranting most-favored nation status to Indiaby switching to a system of "negative lists" thatwill restrict the import of around 1,200 itemsfrom India, compared to the earlier regime whereonly 1,900 products were permitted to be shippedacross the border.Although Pakistan said that it will not compromise on any "core issue" such as Kashmir - astatement meant to placate hostile elements within the country -- in the next stage, Islamabadhas committed to phase out the negative list by the end of 2012 and move to a regime that iscomplies with World Trade Organisation norms.According to Commerce Minister Makhdoom Amin Fahim:“The purchasing power of Pakistani consumers will increase with the grant of MFN status toIndia because they will have access to goods at competitive rates” Issue #2: The NATO Supply IssuePakistan US relations Timeline 2011-20122011 April - The founder of Al-Qaeda, Osama bin Laden, is killed by American special forces inAbbottabad.2011 Sept. 21 - U.S. says Pakistan aided insurgent groups. A week after the United Stateswarned Pakistan that it should cut ties with Haqqani insurgent network2011 Sept. 23 - Pakistan denies U.S. allegations. Pakistans Foreign Minister Hina Rabbani Khardenies U.S. allegations about aiding the insurgent groups2011 November 26 - NATO airstrike kills 24 Pakistani soldiers2011 November 27 - Pakistan shuts down Nato supply routes after a Nato attack on militaryoutposts kills 25 Pakistani soldiers.2011 December 5 - Pakistan boycotts the Bonn Conference on Afghanistan in protest at theNato attack on a border checkpoint.US troops leave the Shamsi air base in Balochistan in thewake of the November border attack, and Pakistan blocks US convoys entering Afghanistan.2012 March 29 - U.S. generals meet with Pakistani army chief2012 April - talks between Pakistan and US officials failed
Pakistan-U.S. relations remain stuck (Background)ISLAMABAD -- American attempts to rebuild a relationship with Pakistan appear to be stuck onthe issue of a U.S. apology for killing 24 Pakistani border troops last November.Officials from the United States visited Pakistan on Friday for talks on rebooting the relationshipbut left with no agreement. A statement Saturday from the Pakistani presidents office said AsifAli Zardari told those officials that Washington needed to help Pakistan reach "closure" over thekillings of the soldiers on the Afghan border, by following recommendations from the Pakistaniparliament.The parliament has asked Washington to apologize. The United States has expressed regret, buthas declined to specifically say it is sorry.Pakistan shut U.S. and NATO supply lines to Afghanistan to protest the deadly U.S. airstrikes,cut most contacts with Washington and ordered American drone aircraft to leave a base in thesouth of the country. The United States wants Pakistan to reopen the supply lines, preferablyahead of a May 20-21 summit of NATO leaders in Chicago.The Defense Department has said U.S. forces -- given the information available to them at thetime -- reacted in self-defense and with appropriate force after being fired upon from thedirection of the Pakistani border in the Nov. 26 incident.Pakistan used the border incident to try to extract better terms from Washington, which seesPakistan as an essential -- if unreliable -- ally against al-Qaida and vital to sustaining any peacedeal with insurgents in Afghanistan.Pakistan says US not listening, drone strikes must stop“On drones, the language is clear: a clear cessation of drone strikes,” Hina Rabbani Khar said.“I maintain the position that we’d told them categorically before. But they did not listen. I hopetheir listening will improve,” she told.The attacks by the unmanned aircraft from Afghanistan, which US officials say are highlyeffective against militants, fuel anti-American sentiment in Pakistan because they are seen asviolations of sovereignty that inflict civilian casualties.An unannounced raid on Pakistani soil by US Special Forces who killed Al Qaeda leader Osamabin Laden last May plunged relations to a low, and tensions were further stoked in Novemberwhen a Nato attack across the border from Afghanistan killed 24 Pakistani soldiers.Salala attack violation of Pakistan’s sovereignty: SherrySpeaking at a ceremony in Washington, she condemned the recent attacks in Kabul and saidthat Pakistan was with its Afghan brothers in their difficult times.However, she emphasised that Pakistan was also suffering from acts of terrorism on a dailybasis. Rehman, moreover, called the attack on Salala checkpost an act of violation of Pakistan’ssovereignty.
She said differences between the US and Pakistan arose because of the Salala incident.Repercussions of the incident - Closure of NATO supply linesPakistan immediately closed all NATO supplies to Afghanistan in the aftermath of the attack,leaving the blockaded supply trucks vulnerable to attacks. NATO trucks had been using thesupply routes, in Khyber Agency (through the Khyber Pass at Torkham) and Balochistan (nearChaman), to supply U.S. and international forces fighting in Afghanistan.US policy makers tried to find alternative routes through Russia, Kazakhstan, Uzbekistan, andTajikistan (termed as the "Northern Distribution Network") but these are longer and lesseffective than routes through Pakistan. Huge costs are associated with the Central Asian supplylines, and NATOs supply line through Russia is already under a looming danger of closure dueto friction over missile defense plans. Being a landlocked country, Afghanistan is highlydependent on Pakistan for its imports. According to figures released by The Pentagon inJanuary 2012, the United States was paying six times more to send supplies to troops inAfghanistan via alternative supply routes following the closure of Pakistani routes. The figuresplaced the new U.S. costs at $104 million per month, roughly $87 million costlier per monththan when the cargo was transported via Pakistan. The high costs were associated with theroutes being lengthier.However, he conceded the expensiveness of these routes and noted that negotiations withPakistan regarding the possibility of opening of the supply routes were ongoing. After reviewingUnited States-Pakistan relations and outlining what was needed to repair bilateral relations, thePakistani parliament turned the decision of reopening the NATO supply lines over to thegovernment in April 2012. Due to an upcoming general election in Pakistan, with widespreadanti-American sentiments in the country, the Pakistani government is reluctant to reopen thelines, and has postponed its decision until the United States responds positively to Pakistanidemands outlined in the parliamentary recommendations, such as a U.S. apology for theNovember 2011 incident, the bringing of those involved in the strike to justice, and a stop toU.S. drone airstrikes. Talks between Pakistan and the United States failed in April 2012 afterPakistan could not get an unconditional apology from the United States for the November 2011incident. The White House refused to apologize after Taliban attacks in Kabul and other cities inAfghanistan on April 15, 2012, which according to U.S. military and intelligence officials camefrom the Haqqani network, a group working from a base in North Waziristan in Pakistan’s tribalbelt. Pakistani officials said they cannot open the NATO supply routes in Afghanistan without aUS apology.
Issue#3: PAK-IRAN GAS PIPELINE (2012)The idea was conceived by a young Pakistani civil engineer Malik Aftab Ahmed Khan in mid1950s, when an article of his was published by the Military College of Engineering, Risalpur. Thearticle Persian Pipeline also mentioned the method for its protection along the hostile territoryby establishing mini battalion-size cantonments along its proposed route throughBaluchistan/Sind. The project was conceptualized in 1989 by Rajendra K. Pachauri inpartnership with Ali Shams Ardekani, former Deputy Foreign Minister of Iran. Pachauriproposed the plan to both Iranian and Indian governments. The government of Iran respondedpositively to the proposal. At the 1990 annual conference of the International Association ofEnergy Economics, Ardekani backed Pachauris proposal.Controversies and Issues Over TimeDiscussions between the governments of Iran and Pakistan started in 1994. A preliminaryagreement was signed in 1995. This agreement foresaw construction of a pipeline from SouthPars gas field to Karachi in Pakistan. Later Iran made a proposal to extend the pipeline fromPakistan into India. In February 1999, a preliminary agreement between Iran and India wassigned. In 2004 the project was revived after the UNDPs report Peace and Prosperity GasPipelines by Gulfaraz Ahmed was published in December 2003. The report highlighted benefitsof the pipeline to Pakistan, India and Iran.In January 2010, the United States asked Pakistan to abandon the pipeline project. If cancelingthe project, Pakistan would receive assistance from the United States for construction of aliquefied natural gas terminal and importing electricity from Tajikistan through AfghanistansWakhan Corridor. However, on 16 March 2010 in Ankara, Iran and Pakistan signed anagreement on the pipeline. According to the agreement each country must complete its sectionby 2014.In July 2011, Iran announced that it has completed construction of its section. If Pakistan doesnot fulfill its obligation to complete the pipeline on its side by the end of 2014, it will have topay a daily penalty of $1 million to Iran until completion. On 13 March 2012 Pakistans ministry
of finance announced that private investors were showing diminished interest and that thegovernment might have to impose a tax on consumers, or seek government-to-governmentarrangements with Iran, China and Russia to build the pipeline. Then, in a 7 April article thePakistani daily PakTribune reported that Gazprom would both finance and construct thepipeline. The article also informed that the reason the private consortium no longer wouldcontribute to the project was US opposition.On 15 April 2012 it was reported through unnamed diplomatic sources in Islamabad that SaudiArabia was offering to deliver an "alternative package" to Pakistan if the country abandoned itscooperation with Iran. In addition to oil the package would also include a cash loan and oilfacility. The news came in connection with a visit to Pakistan by the Saudi deputy foreignministerThe Current ScenarioISLAMABAD: Pakistan has issued tenders for the construction of 785 kilometres pipeline underIran-Pakistan gas pipeline project and the successful bidder will be bound to complete thepipeline in 2 years.The tenders were issued after solid commitment from Tehran to extend $500 million credit linefor the project, a senior official at the ministry of petroleum and natural resources told TheNews.Iran is desperate to sell gas to Pakistan, as it faces tough economic sanctions from the US andthe Western countries over its nuclear programme. A consortium headed by the Industrial andCommercial Bank of China (ICBC) has already refused to provide financial advisory services forthe project mainly because of the severe US opposition. As per the draft agreement for thecontractor prepared by the Inter-State Gas Company, a copy of which is available with TheNews, the 785 kilometres long, 42-inch diameter pipeline will be laid in two years’ time totransport 750 million to 1 billion cubic feet gas per day at high pressure.The contractor will also install three pressure compressors in the pipeline from Pak-Iran borderto Nawabshah. The official said the tax exemption on import of all items and services needed tohelp construct the pipeline would be extended. The interested companies will be bound tosubmit their technical and financial bids for the project by June 8. Under the gas sales purchaseagreement (GSPA), the official said, Pakistan is bound to have a first take of Iranian gas byDecember 2014 and in case of failure, it will have to pay $1 million per day to Iran as penalty.Source: The News, Saturday, April 28, 2012