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Modi to review Pakistan's most-favoured nation status; what does it mean?

India accorded Pakistan with the most-favoured nation tag in 1996, a year after the WTO was formed.

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In the aftermath of the terrorist attack at Uri which claimed the lives of 18 Indian army men, India's Prime Minister Narendra Modi along with his ministers and advisors, are mulling a befitting comeback. In the days after the attack, there have been calls for a war and cries for the revocation of the Indus Water Treaty while the government moves to garner international support against Pakistan, and isolates the country diplomatically. 

In one such move, PM Modi is expected to review the Most Favoured Nation status conferred to Pakistan in 1996, on Thursday. While India accorded the status to Pakistan, nearly 20 years ago, the gesture hasn't been reciprocated by Pakistan despite repeated talks on the subject. Modi is even expected to escalate the matter and take Pakistan to the World Trade Organisation (WTO) over it. 

Let's find out what the Most-favoured nation status is all about. 

Here's how the World Trade Organisation describes it: "It sounds like a contradiction and suggests special treatment (most-favoured), but in the WTO it actually means non-discrimination - treating virtually everyone equally."

WTO further explained: "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".

There are over 140 members of the MFN club. The WTO says that MFN is so important for trade amongst countries, that it is the first article of the General Agreement on Tariffs and Trade (GSTT), governs goods trade. 

Special "most-favoured" treatment

According to the WTO, there are some exceptions that are allowed among member nations. However, these are only permitted under strict conditions.

They are: 

-- Member countries can set up a free trade agreement (FTA) that only applies to the goods traded within the group, thereby discriminating against the goods from outside. 

-- They can give developing countries special access to their markets. 

-- A country can raise barriers against products from certain countries that are being traded unfairly.

India accorded the MFN status to Pakistan in 1996, a year after the WTO was formed. While Pakistan had decided to reciprocate, it hasn't been done so far. According to The Indian Express, Pakistan "came up with a dissimilar but globally popular Non-Discriminatory Market Access (NDMA) for India."

India - Pakistan Bilateral Trade

India-Pakistan bilateral trade stands at about $2.7 billion (nearly Rs 17,962.42 crore). India's exports goods worth nearly $1.85 billion (approximately Rs 12,307.60 crore) to Pakistan. While it imports goods worth $490 million (nearly Rs ​3,259.84 crore) from the neighbouring country. 

According to an article in The Diplomat, India's exports to Pakistan comprise about 80% of the bilateral trade. However, experts cited in the article said that the trade between the two countries was actually nearly double the official figure, with Imports from India to Pakistan going via third countries, such as Dubai. The trade via third countries is estimated to be around $3.5 - $4 billion. 

According to a Working Paper by India-Pakistan Trade website, informal trade between then two neighbouring countries continues to thrive despite measures taken in the recent years to normalise trade. The study stated that informal trade between India and Pakistan has been estimated in the range of $250 million to $2 billion (nearly Rs ​1,663.18 - 13,305.5 crore) per year. 

Informal trade is defined as all the trade between the two countries that should be included in the national income statistics, according to the conventional national income accounting, but is not, the working paper said. 

What happens if Modi decides to strip Pakistan of the MFN status?

The bilateral trade between India and Pakistan will immediately take a hit if the MFN status is revoked. The impact is not expected to be drastic on the Pakistani economy, since the trade between the two countries isn't gargantuan. However, it will stop their access to essential commodities that are sent over the border to the country. The price of goods will also escalate as supply will be cut off.

The major trade between the two countries include, organic chemicals, man-made filaments, cement, sugar, vegetables and certain fruits and tubers, mineral fuels, cotton, stone, lime, dry fruits, steel, mineral oils, salts, earths, and plastering material. 

However, according to a report in the Times of India, the government is unlikely to revoke or withdraw the MFN status accorded to Pakistan, instead, it is likely to "internationalise" as PM Modi called it, the lack of a reciprocation from Pakistan. 

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