Next rap on Pakistan's knuckles: MFN status

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New Delhi, Sept 28: Modi Government has decided to review the Most Favoured Nation (MFN) status given to Pakistan in the wake of recent uri attack in Jammu and Kashmir. Sources say that India is weighing all its options how to move forward in this direction. India may drag Pakistan to WTO over the issue.

The option of dragging pakistan to WTO could be discussed in the meeting called by Prime Minister Narendra Modi on Thursday to review MFN status to Pakistan.

MFN status: All you need to know

The Prime Minister has already chaired a review meeting of 56-year-old Indus Water Treaty during which it was decided that India will "exploit to the maximum" water of Pakistan-controlled rivers, including Jhelum, as per the water sharing pact.

Know all about MFN status to Pakistan.

What experts are saying?

  • Withdrawal of Most Favoured Nation (MFN) status by India is likely to hurt Pakistani industries as it might stop flow of raw materials at competitive prices, experts say.
  • Rakesh Mohan Joshi who is international trade expert with Indian Institute of Foreign Trade (IIFT) said, "Pakistans's industry will squeeze if India decides to withdraw the status. Diplomatically it will be a good step to isolate Pakistan".
  • "Their industry will face issues if India stops these exports. Their cost of manufacturing will go up," FIEO Director General Ajay Sahai said.
  • However, another expert said withdrawal of the MFN status would be a knee-jerk reaction and trade issues should not be involved in these circumstances.

MFN status and WTO rules

  • The MFN status was accorded to Pakistan in 1996 under WTO's General Agreement on Tariffs and Trade (GATT).
  • Both India and Pakistan are signatories to this which means they have to treat each other and rest of WTO member countries as favoured trading partners.
  • According to WTO rules, India can roll back the MFN status from Pakistan.
  • As per the global trade norms, member countries of the WTO are required to give non-discriminatory market access as part of the MFN status to each other.
  • According to Article XXI of General Agreement on Tariffs and Trade (GATT), a WTO member country can take trade actions for the protection of its essential security interests.

India's exports to Pak (In number)

  • In 2015-16, India's exports to Pakistan stood at USD 2.17 billion, while imports were USD 441 million.
  • India's exports to the neighbouring country worked out to 0.83 per cent of the total Indian outward shipments while imports were 0.13 per cent of the total inward shipments.

Pakistan has yet not given MFN status to India

  • India granted the MFN status to Pakistan in 1996 but Pakistan is yet to reciprocate to that.
  • The neighbouring country has missed its own deadline of December 2012 for giving India this tag.
  • Pakistan is postponing grant of Non-Discriminatory Market Access (NDMA) or MFN status due to lack of consensus at home.

What India exports to Pakistan

  • Exporters body Federation of Indian Export Organisations (FIEO) said that India mainly exports inputs to Pakistani industry such as basic chemicals and cotton, which is vital for their industry.
  • India's main exports include sugar, cotton, man-made filaments, chemicals, carpets, furniture fresh fruits and vegetables while its imports comprise mineral fuels, precious stones, wooden handicrafts among others.

WTO's option

  • India, sources said, may look at the option to file a case at the WTO's dispute settlement mechanism against Pakistan as the neighbour has not yet extended this status to India.
  • Modi government is likely to tell the WTO that it would be withdrawing the MFN status accorded to Pakistan in the year 1996.
  • It is being said that this is part of India's strategy to build up pressure on Pakistan following the Uri attack.
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