India-Pakistan imbroglio(5):MFN Status to Pakistan

Background:

After consecutive terror attacks in the Indian territories bordering Pakistan(Kashmir, Punjab) which were allegedly sponsored by Pakistan, India has brought on cards the review of all agreements with Pakistan.

What is MFN?

  • Most Favoured Nation or MFN is an outcome of the General Agreement on Trade and Tariff or GATT(a precedent of the present World Trade Organization).
  • It is a clause which makes the member countries(or signatories of the agreement) to commit to non-discrimination against other nations.
  • It implies that everytime a nation provides a special preference in terms of , say, lowering the trade barriers or any such other act, the same has to be done for all other members too.

India-Pakistan bilateral MFN status:

While India has accorded MFN status to Pakistan, the latter has not yet reciprocated . Pakistan has upheld one of the exceptions to the acceptance of the MFN clause.

MFN allows for exemptions when it comes to securtiy concerns. Pakistan has upheld the same in the international forums when it came to trade with India.

How huge is the trade between India and Pakistan?:

The volume of bilateral trade between India and Pakistan is a trivial $2.61 bn which amounts to only 0.41% of India’s merchandise.

What if MFN is removed?:

If India revokes MFN status from Pakistan:

It will be able to impose tariffs and duties on imports from Pakistan as the latter now does.

However, since, India imports worth only $441 million of goods and services from Pakistan, it is not going to create any huge impact economically.

So, is it easy to revoke the status?

Not actually. Since, India is a signatory to the GATT and has accorded the status once, it will be difficult to defend the revocation of  the status now. The act of revoking can be justified on the grounds of economic animosity rather than other issues.

Other ways:

  • Economic isolation of Pakistan in regional groupings like SAARC on the basis of impeding efforts of South Asia Free Trade Agreement(SAFTA).
  • Stopping all the concessions on trade to Pakistan.

 

 

 

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