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The loss of MFN status will hardly hurt Pakistan

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January 17, 2022

What is the issue?

India withdrawing Most Favoured Nation status accorded to Pakistan will hardly hurt Pakistan.

What Is the General Agreement on Tariffs and Trade (GATT)?

  • After World War II The General Agreement on Tariffs and Trade (GATT) was signed by 23 countries in 1947.
  • The purpose was to boost economic recovery after the war and make international trade easier.
  • In 1995 GATT was absorbed into WTO, which extended it to 125 nations.
  • One of the key achievements of the GATT was trade without discrimination.
  • Every signatory member of the GATT was to be treated equal.

What is MFN status?

  • It is the first clause in the General Agreement on Tariffs and Trade (GATT).
  • Though the term looks like a favour given to one country, it only ensures non-discriminatory trade.
  • A member country is not allowed to discriminate between trade partners.
  • If a special status is granted to one trade partner it must be extended to all members of the WTO.
  • Disadvantageous situation is avoided when compared to the granter's other trade partners.
  • This reduces trade barriers and results in a reduction of tariffs.

When did India grant MFN status to Pakistan?

  • India granted MFN status to Pakistan in 1996.
  • However Pakistan has not yet awarded MFN status to India citing decades of conflict, mistrust, and war.
  • After Pulwama attack India revoked MFN status given to Pakistan by invoking Article 21 of WTO known as the Security Exceptions Article.
  • It means India can now increase customs duties to any level on goods coming from Pakistan, even exceeding bound rates.

What is Security Exceptions Article?

  • Article 21 does not require any country to furnish any information which it considers contrary to its security interests.
  • It also does not prevent any country from taking any action that it considers necessary for the protection of its security interests.
  • The roots of terror are firmly in Pakistan’s soil
  • But there is little evidence to show that Pakistan’s official establishment is behind it.
  • So using Article 21 India does not have to notify the WTO of its action.

Why will it hardly hurt Pakistan?

  • Rather than hurting, the move may benefit Pakistan.
  • Pakistan exports only $488 million dollars (less than half a billion)  of goods to India  in 2017-18.
  • Pakistan' exports mostly contains fruits, nuts and some minerals.
  • In the same year, India’s exports to Pakistan totalled $1.92 billion, of which $544 million came from cotton.
  • The economically weaker Pakistan could be hurt by the move. However If Pakistan decides to retaliate by buying less from India, we will lose more than they do.
  • Having badly affected in the Jamal Khashoggi murder affair, Saudi Arabia’s Crown Prince is ready to associate himself with anyone willing to shake hands with him.
  • Pakistan could opt to buy from Saudi Arabia which is offering Pakistan $6 billion worth of freebies, half in deposits and the rest in deferred oil payments.
  • In such case Pakistan won’t miss the loss of exports to India much.
  • India has to realise that the step itself means nothing. In the absence of strong trade ties the move will only be symbolic.

 

Reference

  1. https://economictimes.indiatimes.com/news/politics-and-nation/pakistans-most-favoured-nation-status-crapped/articleshow/68018002.cms
  2. https://www.indiatoday.in/india/story/india-withdraws-most-favoured-nation-status-to-pakistan-what-it-means-1456746-2019-02-15
  3. https://www.thehindubusinessline.com/opinion/columns/from-the-viewsroom/mfns-worth/article62267891.ece

 

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