The WSJ reported on 03 November that the Pakistani cabinet decided to grant India “Most Favoured Nation” (MFN) trading status, a move that Indian media largely welcomed. MFN status basically means that the country receiving the status becomes no worse in trading & trade barrier terms that the granting country’s best trading partner. In other words, India doesn’t become Pakistan’s favourite trading country with this decision, just that Pakistan promises to not discriminate against India trade-wise, and to grant the same trade terms as its preferred trading country.
Islamabad’s decision is good news for a relationship fraught with historical (three major wars since 1947), regional (the ever-present Kashmir issue, as well as Pakistani concern over Indian PM Singh’s recent pledge to increase aid to Afghanistan to over USD $1 billion), and security-related tensions (Pakistani cooperation over the November 2008 Mumbai attacks has been grudging at best). Although one Indian trade analyst’s forecast of bilateral trade increasing almost four-fold to $8 billion over the next five years hardly links the two countries in Mutually Assured Economic Destruction (Pakistan-India trade wouldn’t even exceed Pakistan-Belgium trade, much less trade with regional nations), it does raise the stakes on future conflict. With greater trade comes the prospect of more to lose in war – as well as a greater number of people whose interests will be hurt and may thus lobby for peace – and therefore greater incentives for peace, or at the least, negotiations before war.
Obviously, there are still a significant number of obstacles to greater trade integration, such as limited trade flow points, non-tariff trade barriers, and politicians wishing to link trade with other issues (such as Kashmir). Furthermore, high levels of trade don’t necessarily translate into friendly relations – China is Japan’s biggest trade partner, but that hasn’t translated into a greater alliance. Nonetheless, this development, however limited at the moment, holds the promise that the two decades-long nuclear powers have more to gain through cooperation, and may gradually move to regional stability.