News: Revoking MFN status to Pakistan does not favour India’s trade
Indian politicians and media is loaded with demands to revoke most favoured nation (MFN) status granted to Pakistan, but since bilateral trade between the two countries is overwhelmingly in favour of India, the Indians are reluctant to apply this measure.
Biswajit Dhar, Professor, Jawaharlal Nehru University, said there was a possibility of India invoking this clause in view of the fact that it perceives a security threat in the aftermath of the Uri attack. The Indian media quoted an anonymous official who said that the withdrawal of the MFN status was not under consideration, and it was mere speculation due to the tense situation between India and Pakistan.
The MFN status gives an impression of special treatment but actually it provides equal treatment to all the countries that are accorded this status. That means that the terms of trade for all countries with MFN status would remain the same. Even after according the MFN status, countries could restrict trade through various technical and non-technical trade barriers. They could also slap regulatory duties on an item from a specific country to protect their domestic industry.
India accorded the MFN status to Pakistan in 1996, insisting that the status was given to fulfill the commitments made with WTO. Indians insist that Pakistan is obliged under WTO to reciprocally grant MFN status to India.
The Indians however ignore the fact that Pakistan and India have been excluded from GAT/WTO bilateral trade rules under GATT Article XXIV regarding territorial application, frontier traffic, customs unions, and free-trade areas.
The clause 11 of the article states, “Taking into account the exceptional circumstances arising out of the establishment of India and Pakistan as independent states, and recognising the fact that they have long constituted an economic unit, the contracting parties agree that the provisions of this agreement shall not prevent the two countries from entering into special arrangements with respect to the trade between them, pending the establishment of their mutual trade relations on a definitive basis.”
Now that India has accorded MFN status to Pakistan it was difficult for it to withdraw this status. However, the Indians did take steps to deny access to competitive Pakistani products through many innovative tariff, non-tariff and technical barriers.
Although those responsible for Uri attack in Indian held Kashmir have not been identified, Indians insist that it had tacit support from Pakistan. Indians are not ready to accept it was a home grown action, as even after almost 70 days they have been unable to suppress the freedom movement in the valley.
Indian international trade experts suggest that India could consider making use of a ‘security exception’ clause in the GATT to deny the MFN status to Pakistan or bring in certain trade restrictions.
They forgot that massive trade restrictions were already in force which could be verified from the fact that out of $2.16 billion bilateral trade between the two countries; exports from Pakistan are merely $400 million and exports from India to Pakistan are six times higher at $2.2 billion.
They also ignore the fact that past governments, in order to appease India and western powers opened almost all but a 1,000 tariff lines at MFN rate, which means the tariff applied to Indian products and products from any other country was the same. While Pakistan was liberalising trade, Indians were busy restricting imports from Pakistan.
Now the fear in India was that, even if India revoked the MFN status it would only have a ‘symbolic’ impact. It would not hurt Pakistan as its exports to India were minute or nominal. However, if Pakistan retaliated with suitable action, it would hit Indian exports that were six times higher than that of Pakistan. India would also lose goodwill in South Asian region where it’s party to the South Asian Free Grade Area (SAFTA) and enjoys a fat trade surplus.
WTO Article 21(b) allows withdrawal of MFN on security concerns but any action under it has to fulfill the specific criteria of the clause, as member does not enjoy a free run to take any action it wishes under the guise of security interest.
This article was invoked in 1983/1985 in dispute between United States with Nicaragua and European Communities verses Yugoslavia in 1992.