Home Pakistan India No longer a Most Favoured Nation: Will that hurt Pakistan? – Economic Times

No longer a Most Favoured Nation: Will that hurt Pakistan? – Economic Times

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NEW DELHI: After the Pulwama attack by Pakistan-based terror outfit Jaish-e-Mohammad, India has hit back at Pakistan by withdrawing the ‘most-favoured nation’ status to Pakistan. Why was Pakistan India’s ‘most favoured nation’ in the first place when it has been sponsoring terror in India for long? What exactly ‘most favoured’ means? How much will it hurt Pakistan? How will Pakistan respond to this step? Read below for the answers:

What is MFN?

Member countries of General Agreement on Tariffs and Trade (GATT) of the World Trade Organisation (WTO) have to treat one another as favoured trading partners in terms of imposing customs duties on goods. India granted the MFN status to Pakistan way back in 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. Under MFN pact, a WTO member country is obliged to treat the other trading nation in a non-discriminatory manner, especially with regard to customs duty and other levies. So MFN status does not mean the other country is the best friend even though it might sound like that.

Will it hurt Pakistan?

Of course, the withdrawal of MFN status is going to hurt Pakistan to some extent. 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. However, 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.

How will Pakistan respond?

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. However, in practice, many of these items are exported from India to Pakistan through a third country, usually the United Arab Emirates. Pakistan allows only 138 items to be imported from India over the Attari-Wagah land route. Cargo trucks from either side cannot move beyond their border zones, which means that goods must be transloaded at the border, adding to the time and cost of trading and thus discouraging expansion of trade. India mainly exports cotton, dyes, chemicals, vegetables and iron and steel to Pakistan.

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