What is the Issue?
In the wake of Pulwama terror attack on the security forces, the Central government has withdrawn the Most Favoured Nation (MFN) status for Pakistan.
What is MFN?
- Most Favoured Nation status is accorded to a partner country in a trade by the other.
- When MFN is accorded to a nation, it will get equal trade advantages like low tariffs, privileges etc.
- The status can be accorded by the members of the World Trade Organisation (WTO) with each other.
- India accorded MFN status to all member countries of the WTO.
- MFN status does not assure preferential treatment to the receiving country. It only ensures that the trade with it is non-discriminatory vis-a-vis other trading partners of the granting nation.
- The status helps both countries to promote free trade.
MFN To Pakistan
- In the year 1996, India granted MFN status to Pakistan after joining the WTO.
- Granting of MFN to Pakistan was both a necessity as per WTO and a diplomatic measure to maintain trust and bring normalcy between the two countries.
- Pakistan is yet to grant MFN to India. It has mistrust on India. The closest it got to granting MFN to India was in 2011. At that time, it brought out two lists – a positive list of goods that can be imported from India and a negative list that restricted goods import from India. This angered India and the status was never awarded.
- MFN especially helps small exporters of Pakistan to export their products to India which has near similar culture.
- It also aids in curbing the illegal trade of some items.
What Will Happen Now?
- As the trade between the two countries is very meager even after the granting of MFN, the withdrawal of MFN status is only political appeasement.
- Instead, illegal trade of goods might occur.
How Can Trade Help Diplomatically?
- India currently trades to the tune of $5 billion with Pakistan. If non-tariff barriers and visa restrictions are removed and normal relations ensued, the trade between both the countries will reach $30 billion which is a win-win for the people of the countries.
- It also benefits the whole region. Both the countries are teeming with youth population. Trade has the potential to generate jobs for them and ensure peace between the two countries. For this to happen, the trust deficit is to be cleared first.
Way Forward
It is a known fact that Pakistan supports and harbors terrorists that act against India. It has to pay the price for the terror attack in Pulwama. But withdrawing MFN status goes only to an extent. For a real impact, the government should take visibly strong actions. But one thing the redoing MFN status will do is that it starts isolating Pakistan internationally. As is already said by the Finance Minister, the Ministry of External Affairs will hasten its process of isolating Pakistan internationally.
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