DNA Edit: No deterrent – India’s denial of MFN status to Pak doesn’t count for much

While India’s scrapping of the Most Favoured Nation (MFN) status to Pakistan is an understandable reaction to Pulwama, a closer look at trade ties between the two neigbours, reveals that it is not much of a deterrent. And, if India believes it can isolate Pakistan economically by this move, then it needs to think again. While the withdrawal of the MFN status by India is negative, in terms of sentiment, for bilateral relations, the impact on trade is unlikely to be substantial given that volumes of merchandise are low. Pakistan’s exports to India have consistently been a fourth of what it imports from India, the MFN concessions notwithstanding. India accorded MFN status to all WTO member countries, including Pakistan, from the date of entry into force of the so-called Marrakesh Agreement, which established the WTO. In accordance with the MFN principle and its obligations under the WTO, India accorded Pakistan MFN status in 1996. 

However, the efficacy of such a ban is lost when you consider that Pakistan is yet to transition fully to MFN status for India as it maintains a Negative List of 1,209 products that are not allowed to be imported from India. In addition, Pakistan permits only 138 products to be imported from India through the Wagah/Attari border. In 2011, the Pakistani Cabinet formally accorded MFN Status to India, but the decision remained un-implemented. One of the reasons why Pakistan would not be too bothered about imposition of this ban is that India’s trade numbers with it are as low as it can get. Trade between the estranged neighbours jumped from $251 million in 2000-01 to $869 million in 2005-06, but in FY17, Indo-Pakistan trade constituted merely $2.29 billion or about 0.35 per cent of India’s overall trade. Understandably, Pakistan has chosen not to react to the Indian decision.