India to drop veto on EU textile largesse but Singh also needs speedy follow-through
The sound and fury surrounding Osama bin Laden’s death in a Pakistani military township called Abbotabad exactly a week before seems to have drowned out a key step taken by India and Pakistan in recent weeks to normalise relations, using trade as an instrument of foreign policy.
The most unusual aspect of this forward movement did not occur during the just-concluded trade talks between the two commerce secretaries, Rahul Khullar and Zafar Mehmood, in Islamabad on April 28-29, although both Punjabi-speaking officials and their delegations directly benefited from the foundation that had already been laid.
It all happened in Mohali, on the margins of the India-Pakistan cricket semi-final on March 30, when Prime Minister Manmohan Singh met his Pakistani counterpart, Yousaf Raza Gilani. And, acceded to the latter’s request that India drop its objections at the World Trade Organization (WTO) to a proposal by the European Union (EU) to give duty-free access to textile exports from Pakistan. India’s objections had stopped the proposal from going ahead.
According to highly placed sources, Gilani asked the PM, also a renowned economist, if India could consider dropping its objections to the EU proposal, even if it was a “trade-distorting measure” as India had claimed.
The sources explained that the PM’s acceptance of Gilani’s request was in accordance with his own vision of promoting economics to resolve political problems across South Asia. Especially with Pakistan, where the relationship was wound up in real and perceived hurt and humiliation, the business of making money on both sides would significantly help ease matters, the PM felt.
The issue
Around six months before, in the wake of the severe floods that devastated Pakistan last year, the EU proposed duty-free access to 75 export items from Pakistan, 64 of these textiles, for three years. The expected relief for Pakistan was estimated to touch $900 million.
Angry with the EU attempt at shoring up brownie points for Pakistan in return for greater anticipated cooperation in the war against terror, India slammed the move at the WTO. It argued the EU move would affect the export competitiveness of several countries, which would have to continue to pay 6-12 per cent import duties on textiles.
A senior commerce ministry official was widely quoted in the press as saying, “We are not dictated by emotions, but facts.” The officials explained India had no objection to the EU helping Pakistan, but this should take the form of direct assistance in cash or kind, not by bending internationally-recognised trade rules.
Lobbies, like the Confederation of Indian Textiles Industries, soon got into the act. “The EU is appearing to be helping Pakistan, but in reality the bill is being transferred to competing countries that would lose market share,” said D K Nair secretary-general of the textile body.
India also persuaded a handful of other countries to join the argument, including Bangladesh, Peru and Vietnam. Bangladesh, in fact, asked the WTO to compensate it for the losses it would have to bear as a result.
Despite the $11 billion sent home in a year by non-resident Pakistanis, the country’s economy remains in dire straits. Its growth rate remains abysmally low, at two per cent, while the inflation rate is 13-14 per cent. Power cuts are routine, reaching up to 12-14 hours in major cities like Karachi, Lahore and Islamabad. Youth unemployment hovers at 50 per cent, there is less than five per cent investment in the public sector and the tax to GDP ratio remains 10 per cent.
At the Mohali talks on the margins of the cricket match, Gilani told the PM that if India dropped its objections to the EU proposal, it would have a hugely salutary effect on the bilateral relationship. He pointed out that Bangladesh, Peru and other objectors had already indicated they would go along with India’s decision.
According to the sources, who spoke on condition of anonymity, after the PM agreed with Gilani that India would drop its veto, it remains unclear whether the commerce ministry officials have translated that political directive into action at the WTO.
The recent talks
Certainly, at the bilateral trade talks in Islamabad between the two commerce secretaries in April-end, the subject of India’s veto of the EU proposal didn’t even come up. It was understood that the Indian side was working on its commitment, and Pakistan would not embarrass Khullar by raising it.
Pakistani reporters covering the meeting expressed surprise at the omission, considering this was said to have been the most important item on the agenda from the Pakistani side. (For the Indian side, it was the Most Favoured Nation (MFN) issue, which Pakistan has so far refused to grant India, as well as all the other South Asian nations, thereby preventing the South Asian Free Trade Area from coming into being.)
Analysts in Islamabad last week suggested that Pakistan’s postponement of MFN status was an implied quid pro quo for India lifting its objections on the EU proposal. They said India had understood the connection, which is why no one raised the matter.
Interestingly, the meeting between Khullar and Zafar Mehmood was very civil, even friendly, witnesses said. Both secretaries were meeting for the first time since 2007 — talks had frozen since the Mumbai attacks in November 2008 — and a certain re-acquainting was necessary. But clearly, the political directives given by their two PMs circumscribed both the tenor and the content of the meeting.
Need for action
But with the commerce ministry talks having been superseded in the last week by the death of Osama bin Laden and concomitant statements by Indian army chief V K Singh — which led to its own sabre-rattling by Pakistan foreign secretary Salman Bashir — analysts fear the political agreement between Manmohan Singh and Gilani may get buried in an unnecessary political noise.
“The PM must rescue his Pakistan policy. He lost one opportunity in the first UPA government, when he and the Musharraf government were all set to resolve the Kashmir crisis, but that has now passed. If he lets bureaucratic and political hardliners hijack his Pakistan policy this time, he may never get a chance again,” the analysts said.
