Polity and Governance

Most Favoured Nation- Pakistan

Most Favoured Nation- Pakistan
Background In the wake of the Pulwama terror attack in Kashmir that killed over 40 CRPF personnel, India launched a diplomatic offensive against Pakistan by revoking the Most Favoured Nation (MFN) status of Pakistan in February 2019. In addition to this, India has warned of more measures in response to Pakistan`s alleged support to terror groups targeting India. “The MFN status, which had been granted to Pakistan, stands withdrawn,” finance minister Arun Jaitley said. “The MEA (Ministry of External Affairs) will initiate all possible diplomatic steps to ensure the complete isolation from the international community of Pakistan.” India had granted MFN status to Pakistan in 1996, but Pakistan has not accorded MFN status to India. What is the Most Favoured Nation status? The MFN principle of the World Trade Organisation’s General Agreement on Tariffs and Trade holds that members of the body will treat each other as the most favoured nation. The Most Favoured Nation is a treatment accorded to a trade partner which ensures non-discriminatory trade between two countries vis-a-vis other trade partners. The importance of MFN lies in the fact that it is the first clause in the General Agreement on Tariffs and Trade (GATT). 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. What are the exemptions under MFN? •The right to engage in Free Trade Agreements: members can be part of regional trade agreements or free trade agreements where there is discrimination between member countries and non-member countries. •Developing countries can be given special and differential treatment like greater market reduced tariff rates from developing country imports and so on. What are the advantages of MFN status? •MFN status can be very profitable to developing nations as they gain access to a wider market for trade goods, reduced cost of export items owing to highly reduced tariffs and trade barriers. •MFN reduces bureaucratic barriers, and tariffs are set at par for all imports, which gives a boost to exports. •A country that grants MFN status on imports will import items provided by the most efficient supplier. •As MFN clause promotes non-discrimination among countries, they thus tend to promote the idea of free trade. What are the disadvantages of MFN? The main drawback of granting MFN status is the fact that the country has to provide the same treatment to all other trade partners who are members of the WTO, which may damage the domestic industry of the country. What does the revoking of MFN status mean? Now that India has revoked the most favoured nation status from Pakistan, she can levy whatever import tariffs she wants. India can make it extremely expensive for Pakistan to export its goods or services to India. India can increase customs duties to any level on goods coming from Pakistan, even exceeding bound rates. India’s average bound rate for agricultural products is 113.5% while that for non-farm goods is 34.6%. The MFN-applied rates are 32.8% and 10.7%, respectively for each. India has not altered the import duties on Pakistan. India does not have to notify the WTO of this action, as Article 21 of the WTO’s General Agreement on Tariffs and Trade does not require any country to provide information regarding the disclosure of which it considers contrary to its security interests. It does not prevent any country from taking actions that it considers necessary for the protection of its national security. Economists and trade experts have cautioned India that these actions can be met with further retaliation.
Source: https://www.india.com/news/india/pulwama-attack-india-withdraws-most-favoured-nation-status-to-pakistan-what-is-mfn-3575244/

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