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India Revokes MFN Status to Pakistan

Mon 18 Feb, 2019

India Revokes MFN Status to Pakistan

Just a day after at least 40 Central Reserve Police Force (CRPF) personnel lost their lives in a dastardly suicide bombing attack in Pulwama, the Indian government has withdrawn "Most Favoured Nation" or MFN status accorded to Pakistan.

What is MFN status?

  • Most Favoured Nation status is given to an international trade partner to ensure non-discriminatory trade between all partner countries of the WTO. A country which provides MFN status to another country has to provide concessions, privileges, and immunity in trade agreements. It is the first clause in the General Agreement on Tariffs and Trade (GATT).
  • Under rules of the World Trade Organisation (WTO), a member country is not allowed to discriminate between trade partners and if a special status is granted to one trade partner, the country is required to extend it to all members of the WTO.
  • In a nutshell, MFN is a non-discriminatory trade policy as it ensures equal trading among all WTO member nations rather than exclusive trading privileges. Since India and Pakistan are part of the WTO, both are required to grant MFN status to each other and other partner countries.

Does MFN status offer preferential treatment?

  • Although it sounds as if MFN offers preferential treatment, it only ensures non-discriminatory trade. It makes sure that any country receiving MFN status avoids any disadvantageous situation in comparison to the granter's other trade partners.
  • An MFN status helps reduce trade barriers and results in a reduction in tariffs. An MFN status helps in the promotion of free trade between two or more countries.

When did India grant MFN status to Pakistan?

  • India granted MFN status to Pakistan in 1996, just a year after the formation of the WTO. On the other hand, Pakistan is yet to award MFN status to India. The reason behind Pakistan's move to not grant MFN status to India is decades of conflict, mistrust, and war.