At last Pakistan has decided to grant India the status of Most Favoured Nation (MFN). India granted this status to Pakistan in 1996 but Pakistan did not reciprocate. Therefore, India is rightly demanding that Pakistan should give it the status of Most Favoured Nation (MFN). They said the government of Pakistan should not only give India MFN status but also shift from positive list of imports to a negative list. The Indian officials claimed that it would result in a five fold increase in bilateral trade, which would increase from the present $2.7 billion to more than $10 billion between the two countries in next a few years.

Streamlining customs procedures
India has a 'sensitive list' of about 850 tariff lines for all Non Least Developed Countries members of SAFTA, including Pakistan. Trade under these items is allowed under MFN basis.
India claimed that in coming years, tariff rates would come down to the global levels. To improve infrastructure along with streamlining and harmonising customs procedures at land borders, the Indian government is setting up a modern integrated check post at India Pakistan border at Attari for trade facilitation, which was expected to be ready by April 2011. Presently goods are traded from Wagah post only. Pakistan allows import of about 110 items from India through land route while it is exporting only one item, cement, to India through the same route.
According to the World Trade Organisation (WTO), “MFN status means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners, whether rich or poor, weak or strong”.
MFN is one of the instruments in use by the WTO to make member countries’ trade, more competitive and non discriminatory. India and Pakistan are the signatories of the WTO Agreement; therefore, Pakistan is bound to grant MFN status to all member countries including India, without any discrimination.

History
In the early days of international trade, most favoured nation status was usually used on a dual party, state-to-state basis. A nation could enter into a most favoured nation treaty with another nation under which the US granted most favoured nation trading status to Britain.
The documents indicated that “generally bilateral, in the late 19th and early 20th century unilateral most favoured nation clauses were imposed on Asian nations by the more powerful Western countries. One particular example of MFN status is the Treaty of Nanking as part of the series of unequal treaties. It was implemented in the aftermath of the First Opium War between Great Britain and Chinese Qing Dynasty involving the Hong Kong islands”.
After World War II, tariff and trade agreements were negotiated simultaneously by all interested parties through the General Agreement on Tariffs and Trade (GATT), which ultimately resulted in the World Trade Organisation in 1994. The WTO requires members to grant one another MFN status. A most favoured nation clause is also included in the majority of the numerous bilateral investment treaties concluded between capital exporting and capital importing countries after the Second World War.
The MFN also called normal trade relations, guarantee of trading opportunity equal to that accorded to the most-favoured nation. It is a method of establishing equality of trading opportunity among states by making originally bilateral agreements multilateral. As a principle of public international law, it establishes the sovereign equality of states with respect to trading policy. As an instrument of economic policy, it provides a treaty basis for competitive international transactions, according to WTO documents.

NTBs a major hindrance
India said if trade between the two countries expands it would reduce freight cost, quick deliveries and short inventories. However, much depends on smooth political relations between the two countries.
The share of India in Pakistan’s total exports remained about 1 to 2 per cent, whereas in total imports, it has been 1.24 to 2.66 per cent. This decision would also legalise the ongoing illegal trade of Indian goods to Pakistan via Dubai or any other third country.
A SBP report indicated that allowing import of items from India, i.e. expanding the current list of positive items, will give Pakistan an average saving of $400 to $900 million.
Out of the 100 countries with which Pakistan trades, India is Pakistan’s ninth largest trading partner. This indicated that Pakistan’s trade with India is more than its trade with France, Italy, Thailand, Iran, Canada, Malaysia and Japan in 2007-08. In September, during a meeting between the two commerce ministers, India and Pakistan, agreed to more than double bilateral trade within three years, from the present level of $2.7 billion per annum to about $6 billion. New Delhi had pointed out that trade could be enhanced in petroleum, energy and commodities. Main items of exports to India are vegetables and fruits, textile yarn and fabrics, leather and leather manufacturing, petroleum crude, plants for perfume, pharmaceuticals, rice, sugar refined etc.
In 2008-09 Pakistan exported goods worth $320 million that reduced to $268 million in 2009-10. The trade between the two countries was $1.4 billion in 2009-10. Of which Indian exports to Pakistan were $1.2 billion and exports to India were only $268 million. In 2010-11, India Pakistan trade was $2.6 billion but in real terms it is actually one way trade. It also indicated that India has not liberalised trade for Pakistani products.
Tariff rates of India are significantly high, especially for goods of particular interest to Pakistan, such as textiles, leather and onyx. There are many factors hindering trade between the two countries like poor railway and road linkages, making trade more costly and difficult. Besides, inadequate sea shipments facilities, issuing limited number of visas, cumbersome payments, customs procedures and bureaucratic attitude are also restricting trade.

Indian intransigence
It has been said that the trade liberalisation process is linked with the removal of non-tariff barriers (NTBs) by the Indian government.
The commerce ministry said the MFN is not a new issue as Pakistan and India had signed the General Agreement on Tariffs and Trade (GATT) under which all member states had enjoyed MFN status. From 1947 to 1965 both the countries had signed four agreements. Pakistan has already assigned MFN status to over 100 countries.
Welcoming the decision Indian Trade Secretary said it would not only be good for commerce but it would increases confidence on the economic front that both Pakistan and India are committed to moving the social and trade agenda. India wants Pakistan to grant it MFN status without linking it to non-tariff barriers.


by Ismat Sabir
Tuesday, 31 Jan 2012
Pakistan Today