India’s withdrew the Most favoured nation (MFN) status given to Pakistan in trade in the wake of the deadly terror attack on the CRPF jawans in Pulwama killing 44 personnel. The move can hurt Pakistan’s economy more than Indian trade being hit by any retaliatory decision by Islamabad.
Union Finance Minister Arun Jaitley while addressing the press after concluding the Cabinet Committee on Security (CCS) meeting at 7, Lok Kalyan Marg said that the MFN status to Pakistan stands withdrawn.
The CCS meeting was convened in the aftermath of the Pulwama terror attack on the Srinagar-Jammu National Highway.
Jaitley said that a detailed assessment of the incidents that led to the attack was taken in the meeting. Several details were discussed in the CCS, all of which cannot be shared, he said.
Jaitley said that the CCS extended its deep gratitude to those who made this sacrifice and expressed condolences with bereaved families.
He affirmed that the government will go for all diplomatic steps to ensure isolation of Pakistan by the international community.
“The Ministry of External Affairs (MEA) will initiate all possible diplomatic steps that have to be taken to ensure complete isolation of Pakistan, of which incontrovertible evidence is available, for having a direct hand in this gruesome incident,”
He also said that the MEA will engage with the international community to make sure that the Comprehensive Convention on Terrorism is now adopted.
“As far as the security forces are concerned, they will be taking all possible steps to ensure that full security is maintained and that those who have committed and actively supported this heinous act are made to pay a heavy price,” Jaitley added.
Revoking of the Most Favoured Nation status to Pakistan had been earlier contemplated after four heavily armed terrorists attacked the Indian Army Brigade headquarters at Uri near the Line of Control on 18 September 2016.
Most Favoured Nation
MFN status actually means ensuring non-discriminatory trade with a World Trade Organisation (WTO) partner country. Under the first clause of WTO rules, a country has to extend the MFN status to its trading partner if it extends to other partners. As per this clause, the country with Most Favoured Nation will have the least trade barriers, lower import duties and higher import quotas for its trading partners.
Under GATT, India has to extend MFN status to each of its trading partners in WTO, not just Pakistan. As a WTO member, Pakistan is also bound by these same obligations.
India, one of the initial WTO member ( it was founded in 1995) extended Most Favoured Nation status to Pakistan in 1996. On the other hand, Pakistan has not reciprocated the gesture till now.
Although Pakistan said in August 2011 that it would accord Most Favoured Nation status to India by 1 January 2013, it could not execute its plans due to widespread protests by vested interests, especially by organisations opposed to India. Therefore, it offered non-discriminatory market access (NDMA).
Non-discriminatory trade policy commitment is offered by one country to another on a reciprocal basis. Both countries apply that lowest import-duty and quota-restrictions on imports from each other which they apply on similar imports from any other country. Common markets, customs unions, and free trade areas, however, are exempt from MFN provisions.
Pakistan’s NDMA offer maintains a list of nearly 1,000 Indian items that cannot be given any import duty concessions if they are brought into its territory.
However, even after granting Pakistan the MFN status in trade in 1996, India maintains 600 items in the negative list that means it grants no concession on import duties for these products.
If a trading partner fails to reciprocate its gesture, a WTO member can drag it to the dispute hearing panel. Since the time it extended to Pakistan the MFN status, India had chosen to wait for the neighbouring country to reciprocate.
Only last year i.e. November 2018, Razak Dawood, Pakistan’s Commerce Minister in Prime Minister Imran Khan’s cabinet, said that his country did not have immediate plans to offer India MFN status.
Effect on Pakistan
Trade between India and Pakistan is worth over $2 billion. Pakistan exports to India totalled $488.5 million in 2017-18 fiscal year, while it imported goods worth $1.9 billion from India.
The withdrawal of the MFN status will likely affect Pakistan more as its products could now be subject to higher import duties and even trade barriers or even put a cap on the quantity that can enter India.
The cement industry in Pakistan could be the first to be affected as India is currently importing the building material from there.
Basic chemicals and cotton, which depend on Indian imports, could also be hit by India’s strategy to take a stern view of the attack on the CRPF convoy. Other commodities that could be hit are sugar, vegetables — mainly onion and tomatoes, certain varieties of fruits, mineral oils, salts, stones, lime, dry fruits, steel and plastering materials.
Many Pakistan industries like sugar, steel, textiles and chemicals could suffer on account of the withdrawal of the status. The move will impart an effect on other countries that deal with Pakistan.
Informal export goods from Pakistan to India comprise cloth, tobacco products, dry fruits, leather products — especially footwear which could be the worst-hit.
It has to be acknowledged that the repercussions would hit the Indian trade as well. But then, Pakistan will be the worse-hit since India is withdrawing a privilege that it had extended for nearly 23 years now.
Prime Minister Narendra Modi who strongly condemned the attack has asserted that the sacrifices of the brave security personnel will not go in vain. He said today that the forces will be given full freedom to avenge the attack, adding that “Pakistan has made a huge mistake”.