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August 28, 2013

World Bank asks Pakistan to give MFN status to India

August 28, 2013

ISLAMABAD: In its detailed “Policy Notes” for the Nawaz Sharif government, issued in the midst of mounting tension between Islamabad and New Delhi, the World Bank has asked Pakistan to give India the Most Favoured Nation (MFN) status.
The WB also wants the two countries to sign power transmission and trade agreements.The 293-page WB document — Pakistan the Transformative Path — presents a possible list of the 12 most urgent transformational reforms required to be taken by the Nawaz Sharif government and include the MFN status for India, the import of electricity from India, etc.
On August 20, the WB announced that it had put together a Country Economic Memorandum and 16 sector-specific Policy Notes for the Nawaz Sharif government with a series of policy choices.
Ignoring the tensions as well as the complexities of the irritants, including India’s water offensive and the issue of Kashmir between the two countries, the World Bank suggested to Islamabad: “Completing the trade normalisation process with India and granting it the MFN status would help Pakistan benefit quickly from the fast growth and large markets.”
“Conservative estimates suggest that bilateral trade flows could multiply at least three times, and most observers agree that the growth-enhancing dynamics that this process would unleash would be even more significant for foreign direct investment (especially information technology and manufacturing), services (including financial and tourism), integrated value chains in manufacturing, and power projects.”
While not many including those in the power corridors know how much possible is the import of electricity from India, the WB document even talks of a possible timeline for the implementation of this project that is feared to have an extremely negative impact on Pakistan’s water rights. The WB document says, “A power transmission link with India, under a power tariff arrangement benefiting both countries, could be

implemented in the next 6–12 months with a potential capacity of 1,000 megawatts.”
Pakistan, whose soldiers are being targeted by the Indian Army on the LoC every second day for the last few weeks, is allured by the WB, “Fully normalizing trade relations with India, including opening the border, will facilitate deep forms of trade integration. The measures are necessary to benefit from India’s fast growth and to promote complementarities, including value-chain activities and investment potential.”
It added: “Our calculations using a gravity equation suggest that exports to India are 40 percent below their predicted potential. Similarly, Pakistan is the key missing market for India, underlining that both countries would gain greatly by normalizing their trade relations. These moves should aim at deep forms of trade integration and not be limited to market access. Given that trade is only now starting to be normalized, the focus should be on expediting measures to facilitate trade, building on the recently signed agreements on mutual recognition and visas, and improving infrastructure, institutions, services, policies, procedures, and market-oriented regulatory systems.”
The WB Policy Notes for the Sharif government also outline the following two specific measures for further assessment, potentially on a joint basis with India: a) Removing impediments at the border, especially Wagah-Attari, and along trade routes. A one-stop border post at Wagah-Attari would have a large demonstration effect, as would inland container depots on either side of the border. There is also potential for transit agreements to link Pakistan to Bangladesh and to Nepal, and India to Afghanistan (similar to the one negotiated between Pakistan and Afghanistan); for associated infrastructure supporting new trade routes; and for online payment systems. B) Further integrating border communities. Populations along the border regions are among the poorest in both Pakistan and India, and so integrating their communities presents particular challenges. More localized initiatives to target them, including border bazaars and other measures to encourage cross-border trade, are yet to be fully explored. Some initiatives along these lines are already in place between Bangladesh and India.

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