Pakistan’s MFN tag may stay for now

Background: India-Pakistan relations, Trade ties, Most Favoured Nation (MFN) status, World Trade Organisation (WTO), General Agreement on Tariffs and Trade (GATT), Terrorism, Uri terror attack.

  • The Centre is not considering any proposal to withdraw the Most Favoured Nation status accorded to Pakistan as even without the move the level of bilateral trade is very low.
  • The MFN status was accorded in 1996 as per India’s commitments as a member of the WTO. According to the MFN principle of the WTO’s General Agreement on Tariffs and Trade (to which India is a signatory/contracting party) each of the WTO member countries (including India and Pakistan in this case), should treat all the other members equally as most-favoured trading partners.
  • According to the WTO, though the term MFN suggests special treatment, it actually means non-discrimination. In the wake of the deadly attack on Indian soldiers in Uri, an incident for which India is holding Pakistan responsible, there have been calls in India for tough action against its neighbour, including the revocation of the MFN status.
  • Bilateral trade between the two South Asian neighbours was just $2.6 billion in 2015-16 (of which $2.2 billion constituted India’s exports to Pakistan) – which represented a minuscule 0.4 percent of India’s overall goods trade worth $643.3 billion in the same year.
  • The MFN concept is an integral part of the WTO agreements and is among the principles forming the foundation of the multilateral trading system.
  • As per the WTO, whenever a country brings down a trade barrier or liberalises a sector, it has to do so for the same goods or services from all its trading partners – whether rich or poor, weak or strong. However, exceptions allowed to this rule include free trade pacts and special benefits to poor nations.
  • After the attack in Uri, international trade experts said India could consider making use of a security exception clause in the GATT to deny the MFN status to Pakistan or bring in certain trade restrictions.
  • This is because Article 21(b)(iii) of GATT states that nothing in this Agreement shall be construed to prevent any contracting party (including India in this case) from taking any action which it considers necessary for the protection of its essential security interests taken in time of war or other emergency in international relations.
  • Pakistan (a founding member of the WTO like India) is yet to grant the MFN tag to India (and Israel).

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