In the wake of heightened tensions between nuclear armed India and Pakistan following the Uri terror attacks, India now proposes to review the Most Favoured Nation (MFN) status it had granted to Pakistan in 1996.
Prime Minister Narendra Modi will meet senior officials from the Ministry of Commerce and Industry and the Ministry of External Affairs on September 28 to evaluate India’s options on trade-related relations with Pakistan.
Earlier, taking the offensive right into the heart of Pakistan, Prime Minister Narendra Modi chaired a review meeting of 56-year-old Indus Water Treaty during which it was decided that India will “exploit to the maximum” the water of Pakistan-controlled rivers, including Jhelum, as per the water-sharing pact. PM Modi has warned that “blood and water cannot flow together.”
The MFN status does not mean preferential treatment.
The MFN status was accorded in 1996 under the WTO’s General Agreement on Tariffs and Trade (GATT). Both India and Pakistan are signatories to the agreement, according to which they have to treat each other and rest of WTO member countries as favoured trading partners.
Under WTO rules, a member country cannot discriminate between its trade partners. If a special status is granted to a trade partner, it must be extended to all members of the WTO.
Pakistan still hasn’t granted India with MFN status.
PM Modi’s possible revision of the MFN treatment accorded to Pakistan will effectively close down trade further between the two countries.
Bilateral trade between the two countries stood at $2.61 billion. The major commodities and goods in which both countries trade include cement, sugar, organic chemicals, cotton, man-made filaments, vegetables and certain fruits and tubers, mineral fuels, mineral oils, salts, earths, stone, lime, dry fruits, steel and plastering material.
When a country receives MFN status, it is expected to raise trade barriers and decrease tariffs. It is also expected to open up the market to trade in more commodities and free flow of goods.
In the last 10 years, two-way trade has crawled to $2.7 billion in 2014 from $600 million in 2004. In 2015-16, India exported merchandise worth $2.17 billion, making up just 0.82 per cent of its total exports. Imports from Pakistan were $441.03 million, or 0.11 per cent of India’s total imports.