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What Can <strong>India</strong> and <strong>Pakistan</strong> Do To Maximize the Benefits from <strong>Trade</strong>?<br />
percent. The CGE simulation suggests significant gains for both <strong>Pakistan</strong><br />
and <strong>India</strong> under these scenarios. Not surprisingly, the gains are higher<br />
with improvements in trade facilitation.<br />
The simulations indicate that the welfare effects of MFN would be<br />
very high for <strong>India</strong> and <strong>Pakistan</strong> if trade policy liberalization is accompanied<br />
by improved trade facilitation measures, and in particular reduced<br />
transport costs. Therefore, improvement of connectivity and trade facilitation<br />
between <strong>India</strong> and <strong>Pakistan</strong> should get the utmost priority in<br />
order to make the benefits arising from new trading arrangements more<br />
inclusive. The global CGE simulation suggests that there would be some<br />
trade diversion after <strong>Pakistan</strong> grants MFN status to <strong>India</strong>, as <strong>Pakistan</strong><br />
would divert some of its imports from other countries to <strong>India</strong>. But the<br />
simulations suggest that this trade diversion would result in negligible<br />
welfare effects on the other countries.<br />
Figure 2 shows a list of sectors that would benefit from a rise in<br />
imports from <strong>India</strong>. These benefits would arise due to <strong>India</strong>’s unit-cost<br />
advantage compared to that of <strong>Pakistan</strong>’s other trading partners. The<br />
change in imports by <strong>Pakistan</strong> from <strong>India</strong> would vary from dairy products<br />
to vegetables, fruits, and nuts. <strong>Pakistan</strong>’s imports from <strong>India</strong> would<br />
rise in chemicals, rubber and plastic, food processing, mineral fuels (petroleum<br />
and coal products), metals, machinery and equipment, textiles,<br />
leather products, and sugar, for example.<br />
However, under the MFN-plus-trade facilitation scenario, there<br />
would be much larger rises in imports from <strong>India</strong>. <strong>Pakistan</strong>’s exports<br />
to <strong>India</strong>, meanwhile, would rise by a staggering 202 percent under the<br />
MFN-plus-trade-facilitation scenario, against only 0.19 percent under<br />
the mere MFN scenario.<br />
Option 2: SAFTA (with or without MFN given to <strong>India</strong> and trade facilitation<br />
between <strong>India</strong> and <strong>Pakistan</strong>)<br />
Full implementation of SAFTA refers to a situation where the customs<br />
duties of all traded goods are reduced to zero by the year 2016.<br />
Three scenarios are simulated here. First, the full implementation of<br />
SAFTA; second, full implementation of SAFTA with the granting of<br />
MFN by <strong>Pakistan</strong> to <strong>India</strong>; and third, full implementation of SAFTA,<br />
MFN, and trade facilitation improvements. The results suggest that the<br />
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