Context: Pakistan's Foreign Minister Mohammad Ishaq Dar has highlighted the need for revival of trade ties with India.
Evolution of India-Pakistan trade ties in recent times
- India and Pakistan had taken trade measures against each other in 2019.
- India's steps against trade with Pakistan: India had withdrawn the Most Favoured Nation (MFN) status to Pakistan and raised tariffs on all trade with Pakistan by multiple times. India has made opening of formal trade with Pakistan conditional on Pakistan ending state support to terrorism.
- Pakistan's steps against trade with India: Following India's removal of Article 370 on J&K in August 2019, Pakistan had suspended direct trade ties with India.
Impact of closure of trade ties between India & Pakistan
- Closure of India-Pakistan trade adversely affected businessmen, traders and transporters engaged at the Attari-Wagah land border.
- The closure of formal trade ties between India and Pakistan led the trade between two countries through third countries such as Dubai and Singapore. Trade through these routes involve higher freight, transshipment and other transportation costs.
What is Most Favoured Nation?
- Most Favoured Nation is the cornerstone of WTO agreements.
- Although, Most Favoured Nation sounds like giving special treatment, but in the WTO system it means non-discrimination - ie treating all nations with most favoured nation status equally.
- 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”.
- Countries which are not members of WTO such as Iran, Ethiopia, Turkmenistan, Uzbekistan, Algeria, Somalia, Sudan, and South Sudan etc. Member countries of WTO can impose any number of tariffs on these countries. Note: Currently 164 countries are members of WTO.
- Exceptions to Most Favoured Nation: For example, countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside. Or they can give developing countries special access to their markets. Or a country can raise barriers against products that are considered to be traded unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate. But the agreements only permit these exceptions under strict conditions. In general, MFN 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.
- Security Exception: Article 21 of GATT gives contracting parties 'Security Exceptions' which allows countries to take trade measures which are necessary to protect the security of the nation. Using this clause,
- India withdrew MFN status of Pakistan (Though Pakistan is a member of WTO)
- US withdrew MFN status to Russia (Though Russia is a member of WTO).