What is the ‘Most Favoured Nation’ status that India just revoked from Pakistan?

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India has decided to withdraw the ‘Most Favoured Nation’ status given to Pakistan, in the wake of the worst-ever terror attack in Jammu and Kashmir a day ago.

Union Minister Arun Jaitley on Friday said that the government has decided to withdraw the ‘Most Favoured Nation’ status given to Pakistan, in the wake of the worst-ever terror attack in Jammu and Kashmir a day ago when a CRPF convoy in Pulwama was rammed into by an explosives-packed SUV that has left 45 troopers dead.

What is Most Favoured Nation status?

The MFN status is governed by the World Trade Organisation’s (WTO) General Agreement on Tariffs and Trade (GATT). Countries signatory to the agreement commit against discriminating each other and rest of the WTO member countries.

Under the MFN status, a WTO member country is obliged to treat other trading nations in a non-discriminatory manner, especially with regard to customs duty and other levies.

The WTO says that if a country extends favour to another country, the country must return the favour.

Though MFN sounds like special treatment, it actually means non-discrimination – treating virtually everyone equally.

Each member treats all the other members equally as ‘most favoured’ trading partners. If a country improves the benefits that it gives to one trading partner, it has to give the same ‘best’ treatment to all the other WTO members so that they all remain ‘most favoured.’

India has accorded ‘Most Favoured Nation’ status to all WTO members, including Pakistan, in accordance with provisions of Article 1 of General Agreement on Tariffs and Trade, 1994 in 1996.

MFN status history

Most Favoured Nation status did not always mean equal treatment. The first bilateral MFN treaties set up exclusive clubs among a country’s most favoured trading partners.

Under the General Agreement on Tariffs and Trade (GATT) and now the WTO, the MFN club is no longer exclusive.

The MFN principle ensures that each country treats its over-140 fellow-members equally. But there are some exceptions. For example:

  • Countries can set up a free trade agreement that applies only to goods traded within the group – discriminating against goods from outside
  • Or they can give developing countries special access to their markets
  • Or a country can raise barriers against products that are considered to be traded unfairly from specific countries
  • And in services, countries are allowed, in limited circumstances, to discriminate
  • But the agreements only permit these exceptions under strict conditions
  • In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners – whether rich or poor, weak or strong.

The barriers concerned include customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities selectively.

What will happen now that India has revoked Pakistan’s MFN status?

There won’t be any significant trade fallout as the level of bilateral trade is very low. India-Pakistan trade volume is less than one per cent than India’s total trade.

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