Addressing the press after the Cabinet Committee on Securities (CCS) meeting in Delhi on Friday Union Finance Minister Arun Jaitley said that MFN status to Pakistan stands withdrawn.
The minister said the government will also take all diplomatic steps to ensure Pakistan is globally isolated. “The Ministry of External Affairs will initiate all possible diplomatic steps which are to be taken to ensure the complete isolation from the international community of Pakistan of which incontrovertible is available of having a direct hand in this act,” he said.
India has accorded the “Most Favoured Nation” status to all members of the World Trade Organisation in accordance with provisions of the Article 1 of General Agreement on Tariffs and Trade, 1994. Besides Pakistan, India had accorded MFN status to Bangladesh and Vietnam.
India withdraws Most Favoured Nation status granted to Pakistan - Likely implications on Pakistan's economy
It is uncertain whether it will have serious economic consequences for Pakistan. Pakistan’s exports to India in 2015-16 was $441 million – 1.56 per cent of its total exports – and much of it was primary products. On the other hand, India’s exports through regular channels to Pakistan in 2015-16, despite the denial of MFN status, was $2.17 billion. Pakistan could retaliate by restricting imports of several items from India.
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.
“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.
What is the Most Favoured Nation clause
In international economic relations and international politics, "most favoured nation" (MFN) is a status or level of treatment accorded by one state to another in international trade. The term means the country which is the recipient of this treatment must nominally receive equal trade advantages as the "most favoured nation" by the country granting such treatment.
"Most favoured nation" relationships extend reciprocal bilateral relationships following both GATT and WTO norms of reciprocity and non-discrimination. In bilateral reciprocal relationships a particular privilege granted by one party only extends to other parties who reciprocate that privilege, while in a multilateral reciprocal relationship the same privilege would be extended to the group that negotiated a particular privilege.