The government is building a case for scrapping the most-favoured nation (MFN) status granted to Pakistan, though it doesn’t mean much in trading terms even if the country doesn’t take action to curb cross-border terrorism.
The India-Pakistan bilateral trade came up to a paltry $2.6 billion in 2015-16 — tilted largely in India’s favour.
Indian exports to Pakistan accounted for $2.2 billion during this period. Given that India has an overall goods trade of $643.3 billion, business relations with its neighbour is negligible at best.
So, any decision to revoke the MFN status will be nothing more than a symbolic – and political – gesture. India had accorded the MFN status to Pakistan in 1996. “No decision has been taken on the MFN status. But don’t forget that it was a friendly gesture by India to its neighbour, something that has not been reciprocated in all these years,” said an Indian official.
The MFN status was also given in accordance with India’s commitments as a member of the World Trade Organisation (WTO). The status, in principle, means WTO members should “treat all the others in the grouping equally as most-favoured trading partners”.
“Scrapping the status is no big deal, considering that the trade volume is so low. And Pakistan hasn’t reciprocated India’s gesture so far,” said former career diplomat MK Bhadrakumar.
However, it remains to be seen whether India will go to the extent of invoking a security exception under the General Agreement on Trade and Tariff (GATT) to deny Pakistan the MFN status. “Member states are empowered to invoke the relevant section to protect security interests in rare situations. Continual cross-border terrorism is a serious security situation,” a source pointed out.
“Nothing in this agreement shall be construed to prevent any contracting party from taking action it considers necessary for the protection of its essential security interests… Such measures can be taken under the UN charter for maintenance of peace and security,” says Article 21(b)(iii) of GATT.
- What is MFN?
Most Favoured Nation (MFN) is a status granted by a trading partner to the other country giving an equal treatment in terms of trading prices or tariffs, market access without discrimination in imports and exports. MFN does not suggest any special treatment it simply means no discrimination when it comes to trade.
- Why is MFN important in the trade between India and Pakistan?
India accorded Pakistan this status way back in 1996. Since then it has been in talks with Pakistan to give an equal status to India. But till now, Pakistan has not accorded the status to India. India has given close to 200 MFNs (to all WTO members).
- What is the extent of current bilateral trade between India and Pakistan?
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% of India’s overall goods trade worth $643.3 billion in the same year.
- Does MFN status impact the trade?
Yes, it does. If the status is granted by Pakistan to India, then close to 2004 items which India cannot export to Pakistan could have been exported, getting an easy market access. Some of these products are now routed via Dubai to Pakistan. Items such as machine tool, textiles, etc have good demand in Pakistan but go via Dubai instead of going directly from India.