TLI Explains: India Withdraws Most Favoured Nation Status From Pakistan; Know What It Means

Just a day after the dastardly Pulwama attack which left over 40 CRPF jawans dead and many others injured, India withdrew the ‘Most Favoured Nation’ status which it had accorded to Pakistan.

Finance Minister Arun Jaitley said, “MEA will initiate all possible diplomatic steps which are to be taken to ensure the complete isolation from the international community of Pakistan of which incontrovertible is available of having a direct hand in this act.”

What is the MFN?

General Agreement on Tariffs and Trade (GATT) of the World Trade Organisation (WTO) have member countries have to treat one another as favoured trading partners. In other words, a country which grants MFN status to another country has to give preference to the nation in terms of trades agreement. It is a non-discriminatory trade policy between all the partner countries of the WTO and discourages exclusive trading privileges. Since India and Pakistan are both members of the WTO, they are required to grant the MFN status to each other as well as other partner countries.

India had granted this status to Pakistan way back in 1996 but Pakistan is yet to reciprocate. Prime minister Narendra Modi had put the status under review after the Uri attack in 2016. In 2018 Pakistan said that while the country does not have any plans of granting the MFN status immediately, it is working on free trade agreements with many countries.

India Pakistan trade

According to The Indian Express, Pakistan maintains a list of 1,209 products that are not allowed to be imported from India and only 138 items can be imported from India through the Wagah/Attari border land route. In spite of such hurdles, the bilateral trade between the two nuclear-armed nations is considerable.

Trade between both nations is minuscule. In 2016, India’s trade with Pakistan was pegged at around Rs 17,200 crore whereas that with much smaller Bhutan was Rs 8,723 crore. In the next financial year, Pakistan’s trade with India was a mere Rs 16,338 crore approximately which is about 0.35% of India’s total trade. The goods and commodities which are traded between both the nations include cement, fruits, mineral oils and sugar among others. Withdrawal of the status means that India is free to enhance the customs level on goods coming from Pakistan as was seen the case.

Just a day after India revoked the MFN status, India hiked the customs duty on all goods imported from Pakistan to 200%. Arun Jaitley tweeted:

India has withdrawn MFN status to Pakistan after the Pulwama incident. Upon withdrawal, basic customs duty on all goods exported from Pakistan to India has been raised to 200% with immediate effect. #Pulwama

— Arun Jaitley (@arunjaitley) February 16, 2019

Reportedly, the two main items imported from Pakistan to India were dry fruits and cement, on which the customs duty was 30-50% and 7.5%. In the financial year 2018, Pakistan’s import to India was a mere $489 million. According to The Economic Times, India’s move was in accordance with the domestic Foreign Trade (Development And Regulation) Act which allows India to either restrict, prohibit or regulate the import and export of goods. Considering that India’s bilateral trade with Pakistan is minuscule, the move is being seen as a symbolic move. According to India Today, sources in the Commerce Ministry will write to WTO to in order to revoke to MFN status officially.

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