New Age Islam
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Current Affairs ( 13 Oct 2011, NewAgeIslam.Com)

Trading With the Enemy

By Najam Sethi

October 14, 2011

The granting of Most Favoured Nation (MFN) to India has confounded certain long-established political and ideological vested interests. The story of why Pakistan denied this status to India for two decades and why it has relented today is worth telling because it sheds light on a critical dimension of Pakistan’s “national security doctrine”.

The Pakistani military has always spurned the notion that trade with India could be beneficial in any way to Pakistan. “Trading with the enemy” was taboo because India stood to benefit more from it than Pakistan by running huge trading surpluses. That could not be allowed until the Kashmir issue was resolved to Pakistan’s satisfaction. So after the 1965 war with India, all trade was banned, except a short list of necessary items.

The civilian leaders demurred, partly because they were often loyal creatures of the Pakistan military, and partly because they were corrupt and weak. Sections of trade and business went along with this national security doctrine because they stood to lose their Western trading franchises and monopolistic industrial practices in a protected market environment.

But China entered Pakistan’s national security equation in the 1990s as the most favoured nation in the world. It seized the Pakistani market for consumer goods and destroyed its small-scale domestic manufacturing industry. Questions now began to be asked why India should be kept out especially since transport costs were lower across the borders and also because certain Pakistani exporters stood to benefit from reciprocal trade facilities with India. India seized on this political environment change to grant MFN status to Pakistan but Pakistan didn’t return the compliment because the military was actually promoting jihad in Kashmir.

The Indians sought to use trade to build interdependencies between India and Pakistan so that the hatchet over Kashmir could be quietly buried in a mountain of profitable vested interests in Pakistan. By the same token, the Pakistani military was determined to thwart any such initiative. Under the circumstances, a clutch of feasibility reports commissioned by the Commerce Ministry under the Benazir Bhutto regime in the mid 1990s which proved that there were significant benefits to Pakistan from trading with India were quietly shelved. How could the “enemy” which was throttling Pakistan’s “jugular vein in Kashmir” be a most favoured nation?

In 1998, Nawaz Sharif made a tentative move to dent this equation. Pakistan had surplus sugar and electricity for which there was demand in India and profits to be made in Pakistan by both the private and public sector. The nuclear tests had led to a US squeeze on the Pakistani economy and Sharif sought to break out of his regional straightjacket. But there were no significant transport facilities to enable such exports. The Indians wanted security guarantees that if they built such facilities on their side of the border these would not be left stranded in the event of any future conflict with Pakistan. So Sharif opted for “bus diplomacy” in February 1999 with India’s PM to create the political space to expand trade and commerce. He also launched a back channel to resolve Kashmir. But the military sabotaged this initiative by launching an operation in Kargil and overthrowing Sharif.

General Musharraf’s pet project was the Iran-Pakistan-India pipeline. Iran had a gas surplus, India was facing a huge energy deficit but Pakistan was self-sufficient. All Musharraf wanted was to collect transit rent from Iran and India without giving any security guarantees for the pipeline in the event of conflict with India. He also did not want to open up trade with India. So nothing came of it.

Peace with India was high on Asif Zardari’s agenda in 2008. But Pakistani terrorists with links to the military put paid to that in Mumbai.

Now MFN status has been granted to India because of two compelling reasons. The first is economic: the Pakistani economy is in a bind again because relations with America have soured and adversely impacted the aid pipeline; the IMF has pulled out because we are not ready to tighten expenditures and raise revenues, and inflation, unemployment and poverty are weighing on the public. Cheap imports from India will help in controlling inflation just as exports to India will help the balance of payments. The second is political: the military is embroiled in a serious conflict on its western borders and wants to stitch up the eastern border with India so that it is not distracted from the job at hand.

Is this a paradigm change? It isn’t if the Pakistani military is looking upon it as a tactical necessity. Should it be scorned? No, because opening up trade has its own powerful dialectic of enabling people on both sides of the border to establish and sustain mutually profitable and beneficial interests and contacts. It is the first step in the long journey to establish people-to-people contacts and help build stability, peace and prosperity in the region.

Source: The Friday Times, Lahore