“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 improve significantly 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 report estimates 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 Trade Organization. A country grants this clause to another nation if 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 classified as "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 includes informal (illegal) trade, conducted through cross border smuggling and personal baggage — and according to some estimates, worth $13 billion. It also includes trade to the tune of $3-3.5 billion conducted through third-parties, such as Dubai, since direct trade is difficult. The potential for new markets is tremendous. For instance, a Government College University study suggests expanding Pakistan’s light engineering sector. The same study suggests that India has a relative advantage in bicycle production, which it could export to Pakistan. Additionally, as FICCI secretary–general, Rajiv Kumar notes, if Indian goods are permitted to transit through Pakistan and access Central Asian markets, then traders in Haryana, Punjab, Himachal Pradesh and North Rajasthan stand to gain substantially.

Two common misconceptions

• Indian goods will flood Pakistani markets and ruin local producers: WTO provisions allow members to impose safeguards restricting imports (for temporary periods) should such imports unfairly or seriously injure domestic producers.

• India and Pakistan’s political tensions will defeat smooth trade efforts: History suggests old enmities can be overcome by trade. Consider the end of the China-Taiwan fray, and the concomitant 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 in Vietnam today.

What needs to be done now?

• Liberalize the visa regime for businessmen: Currently, business visas granted by India to Pakistani nationals are city specific, single entry and short duration. This limits what can be accomplished in one business trip. In this context, the recent report that India is considering moving towards a Preferential Trade Agreement with Pakistan and that a liberalized visa regime would be one of the first steps is particularly encouraging.

• Improve infrastructure, including warehousing facilities for perishables, better rail and cargo train services, and air links.

• Ease restrictions, such as the number of hours or the day of week when official trade across borders can occur.

To counter Indian threats after Most Favored Nation status Makers can use Trade Defence Laws

The manufacturers can use Trade Defence Laws available in Pakistan to 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 Duties Ordinance, Countervailing Duties Ordinance and Safeguards Ordinance.They also stated that the laws could even be pressed into service if there was a threat 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 not prepared for competition with the Indian industry after 16 years of signing up on the WTO. The industry 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 a misnomer as the term meant that every trading partner will be given equal treatment and if concessions 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 but imposed 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 the same exception clauses. She also added that the private sector needed to revive its associations and chambers should come up with a joint strategy for the entire sector.

Recent Developments

Pakistan on 7th March, Wednesday moved closer to granting most-favored nation status to Indiaby switching to a system of "negative lists" thatwill restrict the import of around 1,200 items from 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 - a statement meant to placate hostile elements within the country -- in the next stage, Islamabad has committed to phase out the negative list by the end of 2012 and move to a regime that is complies 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 to India because they will have access to goods at competitive rates”

Issue #2: The NATO Supply Issue

Pakistan US relations Timeline 2011-2012 2011 April - The founder of Al-Qaeda, Osama bin Laden, is killed by American special forces in Abbottabad.2011 Sept. 21 - U.S. says Pakistan aided insurgent groups. A week after the United States warned Pakistan that it should cut ties with Haqqani insurgent network2011 Sept. 23 - Pakistan denies U.S. allegations. Pakistan's Foreign Minister Hina Rabbani Khar denies 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 military outposts kills 25 Pakistani soldiers. 2011 December 5 - Pakistan boycotts the Bonn Conference on Afghanistan in protest at the Nato attack on a border checkpoint.US troops leave the Shamsi air base in Balochistan in the wake 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 on the 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 relationship but left with no agreement. A statement Saturday from the Pakistani president's office said Asif Ali Zardari told those officials that Washington needed to help Pakistan reach "closure" over the killings of the soldiers on the Afghan border, by following recommendations from the Pakistani parliament.The parliament has asked Washington to apologize. The United States has expressed regret, but has 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 the south of the country. The United States wants Pakistan to reopen the supply lines, preferably ahead 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 the time -- reacted in self-defense and with appropriate force after being fired upon from the direction of the Pakistani border in the Nov. 26 incident.Pakistan used the border incident to try to extract better terms from Washington, which sees Pakistan as an essential -- if unreliable -- ally against al-Qaida and vital to sustaining any peace deal 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 hope their listening will improve,” she told.The attacks by the unmanned aircraft from Afghanistan, which US officials say are highly effective against militants, fuel anti-American sentiment in Pakistan because they are seen as violations of sovereignty that inflict civilian casualties.An unannounced raid on Pakistani soil by US Special Forces who killed Al Qaeda leader Osama bin Laden last May plunged relations to a low, and tensions were further stoked in November when 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 said that Pakistan was with its Afghan brothers in their difficult times.However, she emphasised that Pakistan was also suffering from acts of terrorism on a daily basis. Rehman, moreover, called the attack on Salala checkpost an act of violation of Pakistan’s sovereignty.

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 the supply routes, in Khyber Agency (through the Khyber Pass at Torkham) and Balochistan (near Chaman), to supply U.S. and international forces fighting in Afghanistan.

US policy makers tried to find alternative routes through Russia, Kazakhstan, Uzbekistan, and Tajikistan (termed as the "Northern Distribution Network") but these are longer and less effective than routes through Pakistan. Huge costs are associated with the Central Asian supply lines, and NATO's supply line through Russia is already under a looming danger of closure due to friction over missile defense plans. Being a landlocked country, Afghanistan is highly dependent on Pakistan for its imports. According to figures released by The Pentagon in January 2012, the United States was paying six times more to send supplies to troops in Afghanistan via alternative supply routes following the closure of Pakistani routes. The figures placed the new U.S. costs at $104 million per month, roughly $87 million costlier per month than when the cargo was transported via Pakistan. The high costs were associated with the routes being lengthier.However, he conceded the expensiveness of these routes and noted that negotiations with Pakistan regarding the possibility of opening of the supply routes were ongoing. After reviewing United States-Pakistan relations and outlining what was needed to repair bilateral relations, the Pakistani parliament turned the decision of reopening the NATO supply lines over to the government in April 2012. Due to an upcoming general election in Pakistan, with widespread anti-American sentiments in the country, the Pakistani government is reluctant to reopen the lines, and has postponed its decision until the United States responds positively to Pakistani demands outlined in the parliamentary recommendations, such as a U.S. apology for the November 2011 incident, the bringing of those involved in the strike to justice, and a stop to U.S. drone airstrikes. Talks between Pakistan and the United States failed in April 2012 after Pakistan could not get an unconditional apology from the United States for the November 2011 incident. The White House refused to apologize after Taliban attacks in Kabul and other cities in Afghanistan on April 15, 2012, which according to U.S. military and intelligence officials came from the Haqqani network, a group working from a base in North Waziristan in Pakistan’s tribal belt. Pakistani officials said they cannot open the NATO supply routes in Afghanistan without a US apology.

Issue#3: PAK-IRAN GAS PIPELINE (2012)

The idea was conceived by a young Pakistani civil engineer Malik Aftab Ahmed Khan in mid 1950s, when an article of his was published by the Military College of Engineering, Risalpur. The article Persian Pipeline also mentioned the method for its protection along the hostile territory by establishing mini battalion-size cantonments along its proposed route through Baluchistan/Sind. The project was conceptualized in 1989 by Rajendra K. Pachauri in partnership with Ali Shams Ardekani, former Deputy Foreign Minister of Iran. Pachauri proposed the plan to both Iranian and Indian governments. The government of Iran responded positively to the proposal. At the 1990 annual conference of the International Association of Energy Economics, Ardekani backed Pachauri's proposal.

Controversies and Issues Over Time

Discussions between the governments of Iran and Pakistan started in 1994. A preliminary agreement was signed in 1995. This agreement foresaw construction of a pipeline from South Pars gas field to Karachi in Pakistan. Later Iran made a proposal to extend the pipeline from Pakistan into India. In February 1999, a preliminary agreement between Iran and India was signed. In 2004 the project was revived after the UNDP's report Peace and Prosperity Gas Pipelines by Gulfaraz Ahmed was published in December 2003. The report highlighted benefits of the pipeline to Pakistan, India and Iran.

In January 2010, the United States asked Pakistan to abandon the pipeline project. If canceling the project, Pakistan would receive assistance from the United States for construction of a liquefied natural gas terminal and importing electricity from Tajikistan through Afghanistan's Wakhan Corridor. However, on 16 March 2010 in Ankara, Iran and Pakistan signed an agreement on the pipeline. According to the agreement each country must complete its section by 2014.

In July 2011, Iran announced that it has completed construction of its section. If Pakistan does not fulfill its obligation to complete the pipeline on its side by the end of 2014, it will have to pay a daily penalty of $1 million to Iran until completion. On 13 March 2012 Pakistan's ministry

of finance announced that private investors were showing diminished interest and that the government might have to impose a tax on consumers, or seek government-to-government arrangements with Iran, China and Russia to build the pipeline. Then, in a 7 April article the Pakistani daily PakTribune reported that Gazprom would both finance and construct the pipeline. The article also informed that the reason the private consortium no longer would contribute to the project was US opposition.On 15 April 2012 it was reported through unnamed diplomatic sources in Islamabad that Saudi Arabia was offering to deliver an "alternative package" to Pakistan if the country abandoned its cooperation with Iran. In addition to oil the package would also include a cash loan and oil facility. The news came in connection with a visit to Pakistan by the Saudi deputy foreign minister

The Current Scenario ISLAMABAD: Pakistan has issued tenders for the construction of 785 kilometres pipeline under Iran-Pakistan gas pipeline project and the successful bidder will be bound to complete the pipeline in 2 years. The tenders were issued after solid commitment from Tehran to extend $500 million credit line for the project, a senior official at the ministry of petroleum and natural resources told The News. Iran is desperate to sell gas to Pakistan, as it faces tough economic sanctions from the US and the Western countries over its nuclear programme. A consortium headed by the Industrial and Commercial Bank of China (ICBC) has already refused to provide financial advisory services for the project mainly because of the severe US opposition. As per the draft agreement for the contractor prepared by the Inter-State Gas Company, a copy of which is available with The News, the 785 kilometres long, 42-inch diameter pipeline will be laid in two years’ time to transport 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 border to Nawabshah. The official said the tax exemption on import of all items and services needed to help construct the pipeline would be extended. The interested companies will be bound to submit their technical and financial bids for the project by June 8. Under the gas sales purchase agreement (GSPA), the official said, Pakistan is bound to have a first take of Iranian gas by December 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