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India to Review Pak's MFN Status
Sep 29, 2016

The meeting to be chaired by Prime Minister Narendra Modi on 28 September to review Pakistan’s Most Favoured Nation (MFN) status, has been postponed. The decision to review the MFN status had come in the wake of the Uri attack, after which India has been weighing various options to respond and isolate Pakistan.

  • Under MFN, a WTO member country is obliged to treat other trading nation in a non-discriminatory manner, especially with regard to customs duty and other levies.
  • 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 this.
  • As per the WTO rules, India can roll back the MFN status from Pakistan. The withdrawal of the MFN status by India is likely to hurt Pakistani industries as it might stop flow of raw materials at competitive prices.
  • In 2015-16, India's exports to Pakistan stood at $2.17 billion, while imports were $441 million.

What is MFN?

Most Favoured Nation (MFN) is a status granted by a trading partner to the other country giving an equal treatment in terms of trading prices or tariffs, market access without discrimination in imports and exports. MFN does not suggest any special treatment it simply means no discrimination when it comes to trade.

Importance of MFN between India-Pakistan: India accorded Pakistan this status way back in 1996. Since then it has been in talks with Pakistan to give an equal status to India. But till now, Pakistan has not accorded the status to India. India has given close to 200 MFNs (to all WTO members).

Current bilateral trade between India and Pakistan: Bilateral trade between the two South Asian neighbours was just $2.6 billion in 2015-16 (of which $2.2 billion constituted India’s exports to Pakistan)—which represented a minuscule 0.4% of India’s overall goods trade worth $643.3 billion in the same year.

MFN status impact on trade: If the status is granted by Pakistan to India, then close to 2004 items which India cannot export to Pakistan could have been exported, getting an easy market access. Some of these products are now routed via Dubai to Pakistan. Items such as machine tool, textiles, etc have good demand in Pakistan but go via Dubai instead of going directly from India.


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