Status on Pakistan’s Most Favoured Nation to India

The Centre has clarified that it is not considering any proposal to withdraw the ‘Most Favoured Nation’ (MFN) status accorded to Pakistan.

Background:

The MFN status was accorded in 1996 as per India’s commitments as a member of the World Trade Organisation (WTO).

What is MFN principle?

According to the MFN principle of the WTO’s General Agreement on Tariffs and Trade (GATT) — to which India is a signatory/contracting party — each of the WTO member countries should “treat all the other members equally as ‘most-favoured’ trading partners.”

• According to the WTO, though the term ‘MFN’ “suggests special treatment, it actually means non-discrimination.”

Why is this in news?

In the wake of the deadly attack on Indian soldiers in Uri, an incident for which India is holding Pakistan responsible, there have been calls in India for tough action against its neighbour, including the revocation of the MFN status.

Can India do it?

International trade experts said 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.

• This is because Article 21(b)(iii) of GATT states that “Nothing in this Agreement shall be construed to prevent any contracting party (including India in this case) from taking any action which it considers necessary for the protection of its essential security interests taken in time of war or other emergency in international relations.”
• Pakistan, a founding member of the WTO like India, is yet to grant the MFN tag to India (and Israel).

How revoking MFN status affects India?

If India revokes the MFN status it would only have a symbolic impact on Pakistan. On the other hand it would hit India’s exports to Pakistan if there are retaliatory actions and it could also result in India losing goodwill in the South Asian region (where it enjoys a trade surplus and is a party to a free trade pact called SAFTA, which also includes Pakistan). The move may also not go down well at the WTO-level.