Context:

• In a major terrorist attack, 40+ CRPF personnel were martyred in J&K’s Pulwama district when a terrorist attacked with an explosives laden vehicle into one of the vehicles of the CRPF convoy.
• In response to the effect, India withdrew MFN status accorded to Pakistan.

MFN status to Pakistan

• India granted MFN status to Pakistan in 1996, a year after the formation of WTO.
• Pakistan still hasn’t granted India with MFN status. On the other hand, it came up with a dissimilar but globally popular Non-Discriminatory Market Access (NDMA) agreement.
• The reason Pakistan has chosen to adopt the NDMA with India is due to political mistrust and a history of border conflicts.

Trade between India and Pakistan

• Bilateral trade between India and Pakistan stands at $2.61 billion.
• The major commodities and goods in which both countries trade include cement, sugar, organic chemicals, cotton, man-made filaments, vegetables and certain fruits and tubers, mineral fuels, mineral oils, salts, earths, stone, lime, dry fruits, steel and plastering material.
• In FY17, India-Pakistan trade was a mere $2.29 billion, or about 0.35% of India’s overall trade.

MFN status:

• MFN means non-discriminatory trade that ensures that the country receiving MFN status will not be in a disadvantageous situation compared to the granter’s other trade partners.
• When a country receives MFN status, it is expected to raise trade barriers and decrease tariffs. It is also expected to open up the market to trade in more commodities and free flow of goods.

Advantages of MFN

• MFN status is extremely gainful to developing countries. The clear upsides are access to a wider market for trade goods, reduced cost of export items owing to highly reduced tariffs and trade barriers.
• These essentially lead to more competitive trade. MFN also cuts down bureaucratic hurdles and various kinds of tariffs are set at par for all imports.
• It then increases demands for the goods and giving a boost to the economy and export sector. It also heals the negative impact caused to the economy due to trade protectionism.

Impact of the Decision:

• The decision by India to withdraw MFN status to Pakistan is intended to isolate Pakistan diplomatically and squeeze the country’s industry.
• Even though the low volumes of trade limit the impact that such a step can have, the stoppage of input materials such as chemicals and cotton from India will push up costs of production for the relevant Pakistani industries.
• However, it will also give a handle to extremist elements in Pakistan to scale up the rhetoric against India.