News: Re­vok­ing MFN sta­tus to Pak­istan does not favour In­dia’s trade

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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.

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