MFN status to Pakistan is removed after Pulwama Attack

India can now enhance customs duties to any level on goods coming from Pakistan

• India has revoked the MFN (Most Favored Nation) status on Pakistan just within 24 hours of the terror attack in Jammu and Kashmir’s Pulwama district. The country is considering punitive actions like significant hike in customs duties, port curbs and ban on goods imported from Pakistan.
• Finance Minister Arun Jaitley said the Ministry of External Affairs will initiate all possible steps to ensure complete isolation from the international community of Pakistan, which is expected to have a hand in the attack carried out by terror outfit Jaish-e-Mohammed.
• Pakistan’s High Commissioner to India Sohail Mahmood was summoned by the Indian external affairs ministry and issued a “strong démarche” in connection with the attack. Following terror attack, Islamabad had strongly rejected any insinuation that sought to link the attack to Pakistan without investigations.

What is MFN (Most favored Nation)?

• In international economic relations and international politics, “Most Favored Nation” (MFN) is a status or level of treatment accorded by one state to another in international trade.
• Member countries of General Agreement on Tariffs and Trade (GATT) of the World Trade Organization (WTO) have to treat one another as favored trading partners in terms of imposing customs duties on goods.
• The term means the country which is the recipient of this treatment must nominally receive equal trade advantages as the “most favored nation” by the country granting such treatment.
• In effect, a country that has been accorded MFN status may not be treated less advantageously than any other country with MFN status by the promising country.

How is MFN between India and Pakistan?

• India granted the MFN status to Pakistan way back in 1996, but Pakistan has not yet reciprocated, though both of them are signatories to GATT.
• A country which provides MFN status to another has to give preference to that country in trade agreements. Basically, MFN is just a non-discriminatory trade policy to discourage exclusive trading privileges among WTO countries.
• Pakistan still hasn’t granted India with MFN status. On the other hand, it came up with a dissimilar but globally popular Non-Discriminatory Market Access (NDMA) agreement.
• The reason Pakistan has chosen to adopt the NDMA with India is due to political mistrust and a history of border conflicts.
• If Pakistan had reciprocated India’s gesture in the past, both countries would have been required to reduce trade tariffs and open trade in commodities. Pakistan is relatively closed in terms of trade. It will have to open trade in over a thousand commodities and India in at least 600.

How the revocation of MFN will impact on Pakistan?

• The withdrawal of MFN status is going to hurt Pakistan to some extent as MFN doesn’t mean preferential treatment. Instead it means non-discriminatory trade that ensures that the country receiving MFN status will not be in a disadvantageous situation compared to the granter’s other trade partners.
• Withdrawal of this status means India can now enhance customs duties to any level on goods coming from Pakistan. India imports fruits, cement, leather, chemicals and spices from Pakistan.
• Even if India imposes punitive duties on goods, it is not going to impact Pakistan much. That’s because India-Pakistan trade is very low. According to a World Bank report, the current level of trade between Pakistan and India is valued at a little over $2 billion, while the capacity is as high as $37 billion. The move by the government has more of symbolic value than trade limitations.
• Pakistan cannot do much since it never offered India MFN status despite promises. It has already blocked import of many items from India.
• The preferential access granted by Pakistan on 82.1 per cent of tariff lines under SAFTA is partially blocked in the case of India because Pakistan maintains a negative list comprising 1,209 items that cannot be imported from India.

Pic courtesy:NDTV.com