India withdrawing Most Favoured Nation status accorded to Pakistan will hardly hurt Pakistan.
What Is the General Agreement on Tariffs and Trade (GATT)?
After World War II The General Agreement on Tariffs and Trade (GATT) was signed by 23 countries in 1947.
The purpose was to boost economic recovery after the war and make international trade easier.
In 1995 GATT was absorbed into WTO, which extended it to 125 nations.
One of the key achievements of the GATT was trade without discrimination.
Every signatory member of the GATT was to be treated equal.
What is MFN status?
It is the first clause in the General Agreement on Tariffs and Trade (GATT).
Though the term looks like a favour given to one country, it only ensures non-discriminatory trade.
A member country is not allowed to discriminate between trade partners.
If a special status is granted to one trade partner it must be extended to all members of the WTO.
Disadvantageous situation is avoided when compared to the granter's other trade partners.
This reduces trade barriers and results in a reduction of tariffs.
When did India grant MFN status to Pakistan?
India granted MFN status to Pakistan in 1996.
However Pakistan has not yet awarded MFN status to India citing decades of conflict, mistrust, and war.
After Pulwama attack India revoked MFN status given to Pakistan by invoking Article 21 of WTO known as the Security Exceptions Article.
It means India can now increase customs duties to any level on goods coming from Pakistan, even exceeding bound rates.
What is Security Exceptions Article?
Article 21 does not require any country to furnish any information which it considers contrary to its security interests.
It also does not prevent any country from taking any action that it considers necessary for the protection of its security interests.
The roots of terror are firmly in Pakistan’s soil
But there is little evidence to show that Pakistan’s official establishment is behind it.
So using Article 21 India does not have to notify the WTO of its action.
Why will it hardly hurt Pakistan?
Rather than hurting, the move may benefit Pakistan.
Pakistan exports only $488 million dollars (less than half a billion) of goods to India in 2017-18.
Pakistan' exports mostly contains fruits, nuts and some minerals.
In the same year, India’s exports to Pakistan totalled $1.92 billion, of which $544 million came from cotton.
The economically weaker Pakistan could be hurt by the move. However If Pakistan decides to retaliate by buying less from India, we will lose more than they do.
Having badly affected in the Jamal Khashoggi murder affair, Saudi Arabia’s Crown Prince is ready to associate himself with anyone willing to shake hands with him.
Pakistan could opt to buy from Saudi Arabia which is offering Pakistan $6 billion worth of freebies, half in deposits and the rest in deferred oil payments.
In such case Pakistan won’t miss the loss of exports to India much.
India has to realise that the step itself means nothing. In the absence of strong trade ties the move will only be symbolic.
