Pakistan’s MFN tag may stay for now

Updated - December 04, 2021 10:50 pm IST

Published - September 24, 2016 11:14 pm IST - NEW DELHI:

Revocation will only have ‘symbolic’ impact as current level of bilateral trade is very low.

The Government of India is not considering any proposal to withdraw the Most Favoured Nation (MFN) status accorded to Pakistan, as even without the move, the level of bilateral trade is “very low,” official sources said.

“There is nothing of that sort [withdrawal of the MFN status] under consideration now,” said a senior government official, who did not wish to be identified. “Since the situation [ties between India and Pakistan] is so tense now, there are these kinds of speculation and demands, and you have to sift [them] out.”

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

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 (including India and Pakistan in this case), 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.” 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.

Minuscule trade Bilateral trade between the two nations was just $2.6 billion in 2015-16 (of which $2.2 billion constituted India’s exports to Pakistan) — which represented a minuscule 0.4 per cent of India’s overall goods trade worth $643.3 billion in the same year.

Therefore, even if India revokes the MFN status, it would only have a “symbolic” impact, the sources said. 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.

The MFN concept is an integral part of the WTO agreements and is among the principles forming the foundation of the multilateral trading system. As per the WTO, whenever a country brings down a trade barrier or liberalises a sector, “it has to do so for the same goods or services from all its trading partners — whether rich or poor, weak or strong.” However, exceptions allowed to this rule include free trade pacts and special benefits to poor nations.

Trade curbs After the attack in Uri, in which 18 Indian soldiers were killed, 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.”

Biswajit Dhar, professor, Jawaharlal Nehru University, said: “There is 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.”

However, according to a ‘Working Paper’ of the Centre for WTO Studies at the Indian Institute of Foreign Trade, “GATT and WTO practice shows that the countries have by and large observed self restraint in using the national security exception.” “This is hardly surprising as national security is too sensitive a subject that countries will be comfortable submitting to an international review,” the paper’s author Shailja Singh wrote.

No bar Ms Singh wrote that a closer scrutiny “reveals that there is no categorical bar on the (WTO dispute settlement) panel from proceeding into an Article 21 dispute.” She pointed out that Article 21(b) is clear that any action under it has to fulfil the specific criteria of the clause, adding that a (WTO) “member does not enjoy a free run to take any action it wishes under the guise of security interest.”

But there have been precedents. The Working Paper points out an Article 21-related dispute in 1949 between Czechoslovak (Socialist Republic) and the U.S., and such disputes between the U.S. and Nicaragua in 1983 and 1985 as well as another one in 1992 between the European Communities and the former Socialist Federal Republic of Yugoslavia.

Pakistan, a founding member of the WTO like India, is yet to grant the MFN tag to India (and Israel).

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