India withdrew Most Favoured Nation Status to Pakistan

  • Category
    Economy
  • Published
    21st Feb, 2019

Context

  • As a retaliatory measure to a dastardly suicide bombing attack in Pulwama, the Indian government has withdrawn "Most Favoured Nation" or MFN status accorded to Pakistan.
  • The decision is intended to isolate Pakistan diplomatically and squeeze the country’s industry. It can led to stoppage of input materials such as chemicals and cotton from India, will push up costs of production for the relevant Pakistani industries.

About

What is MFN status?

  • Article 1 of General Agreement on Tariffs and Trade (GATT), 1994, requires every WTO member country to accord MFN status (or preferential trade terms with respect to tariffs and trade barriers) to all other member countries.
  • Accordingly, India accorded MFN status to all WTO member countries, including Pakistan, from the date of entry into force of the so called Marrakesh Agreement.
  • Most Favoured Nation status is given to an international trade partner to ensure non-discriminatory trade between all partner countries of the WTO.
  • A country which provides MFN status to another country has to provide concessions, privileges, and immunity in trade agreements. It is the first clause in the General Agreement on Tariffs and Trade (GATT).
  • Since India and Pakistan are part of the WTO, both are required to grant MFN status to each other and other partner countries.
  • India granted MFN status to Pakistan in 1996, just a year after the formation of the WTO. On the other hand, Pakistan is yet to award MFN status to India.
  • The reason behind Pakistan's move to not grant MFN status to India is decades of conflict, mistrust and war.

Does MFN status offer preferential treatment?

  • MFN only ensures non-discriminatory trade. It makes sure that any country receiving MFN status avoids any disadvantageous situation in comparison to the granter's other trade partners.
  • An MFN status helps reduce trade barriers and results in a reduction in tariffs. Thereby, promoting freer trade between two or more countries.

     World Trade Organization (WTO)

    • It is the only global international organization dealing with the rules of trade between nations.
    • The goal is to ensure that trade flows as smoothly, predictably and freely as possible.
    • It acts as a forum for negotiating trade agreements and settles trade disputes between its members and it supports the needs of developing countries.
    • All major decisions are made by the WTO's member governments: either by ministers (who usually meet at least every two years) or by their ambassadors or delegates (who meet regularly in Geneva).
    • WTO has over 160 members representing 98 per cent of world trade. Over 20 countries are seeking to join the WTO.
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