Pakistan grants India 'most favored nation' status

In a sign of better ties between the nuclear-armed rivals, Pakistan granted India 'most favored nation' status.

Pakistan's government announced Wednesday it would normalize trade with its giant rival and neighbor India, a sign of better ties between two nuclear-armed nations whose tense relations have long poisoned South Asia.

The decision to grant India "Most Favored Nation" status would enable Pakistanis to export more goods to booming India at a time when Pakistan's own economy is in the doldrums. Some Pakistani business quarters welcomed the decision, but others expressed concerns about cheaper Indian goods flooding the market.

The World Bank estimates that annual trade between India and Pakistan is around $1 billion and could grow to as much as $9 billion if barriers are lifted. Much of the current trade is illicit — products go through Dubai, where they are repackaged and are smuggled into both countries, meaning higher prices and less tax revenue.

Pakistani Information Minister Firdous Ashiq Awan did not say when the new rules would take affect, but said that the country's powerful military — which dictates policy on India — agreed with the decision.

India gave Pakistan MFN status in 1996 and has been waiting since then for it to be reciprocated.

"We deeply appreciate this positive gesture that Pakistan has taken," Indian Commerce and Industry Minister Anand Sharma told reporters in New Delhi. "It will be beneficial for both the countries. It opens up new pathways of elevating our economic engagement to a much higher level."

He said he believed the decision would help improve ties between the two nations. "We need to sustain this in the coming months."

What about Kashmir?

Pakistan and India have fought three wars since they were carved off from each other in 1947, with the disputed status of Kashmir the main flashpoint. Both countries claim all of Kashmir.

India has also been hit by terror attacks by militants trained in Pakistan, allegedly with the support of the Pakistani military. An attack in 2008 in Mumbai by Pakistani terrorists froze a slow moving peace process that has only recently begun again.

Despite Wednesday's move by Pakistan, no breakthrough is expected anytime soon in one of the world's most intractable conflicts.

Granting a country MFN status means that countries trade on equal and improved terms, typically giving each other low tariffs and high import quotas.

Islamist groups and nationalists reared on hatred of mostly Hindu India complained that "trading with the enemy" was a concession to New Delhi that should be resisted.

"Any move to enhance trade ties with India without solving the issue of Kashmir is an exercise in futility," said Hafiz Hussain Ahmed, from the hardline Islamist Jamiat Ulema Islam party. "Why is the government granting MFN status to a country that has destabilized Pakistan?"

Awan rejected that, saying Pakistan has similar agreements with 100 other countries and that "Pakistan would continue to extend moral and diplomatic support to the Kashmiri people. The new trade agreement would not affect the cause of Kashmir."

Hostility to India is deeply ingrained in Pakistan's military, which for years has used the threat from the east as an excuse to gobble up most of the desperately poor country's budget. The decision to normalize trade appears to reflect a slight relaxing of its attitude toward New Delhi, perhaps because it is facing threats from Taliban militants in the northwest.

The Pakistani army's obsession with the threat posed by India is widely believed to be its rationale for allegedly supporting Islamist militants fighting in Afghanistan. It fears a pro-India Afghanistan, and is keeping the militants as proxies to counter that, analysts say.

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