Pakistan’s NDMA Status to India

The meaning of WTO term Most Favoured Nation (MFN) in Hindi / Urdu is Sabse Pasandida Mulk. While India gave Pakistan this status way back in 1990s, this term was raising the hackles within socio-political circles in Pakistan as the general feeling prevailed that how India could be their most liked nation or Sabse Paandida Mulk.  That is one reason that Pakistan had to camouflage this term into a new term “Non-discriminatory Market Access”.

So, Pakistan government has now agreed to grant NDMA status to India. This was decided in a meeting between the Commerce Minister of India and Trade Minister of Pakistan. The timeline for the operationalization of NDMA status has been proposed as end of Feb 2014.

Meaning of NDMA status

It is nothing but a different term mooted by Pakistan in place of the term Most Favoured Nation (MFN) status, used in the World Trade Organization (WTO) agreements. This change in terminology has been proposed because of the possible political fallouts in Pakistan from the use of the term MFN status for India. For instance, Pakistan was supposed to grant MFN status to India in Jan, 2013 but didn’t do so due to the pressure by trade lobbies, right wing and extremist organizations ahead of last year’s general election. It is pertinent in this context to note that India has already granted MFN status to Pakistan in 1996.

Benefits to India

Under NDMA status, Pakistan will allow the import of 1,209 items from India, which were in the negative trade list. A negative trade list consists of all those goods that are banned for import from a country. Other than these goods, all other goods are allowed for import. So with the grant of NDMA status, Indian exports to Pakistan will witness a significant increase in the coming years.

 Has Pakistan asked for anything in return?

Yes, it has asked India to give market access to 250-300 products from Pakistan at lowered import duties.

Other agreements

Trade ministers of both nations agreed to open the Wagah-Attari border 24×7. Until now, the movement of goods through this border crossing was only allowed from dawn to dusk. Additionally, India agreed to liberalize the visa regime for businessmen from Pakistan so that they can be granted multiple entry business visas and are exempt from reporting to police stations in the visiting city in India. Apart from the above 2 agreements, both sides also committed to grant banking licenses to a few selected banks from the other country on a reciprocal basis. This will facilitate trade between the two sides.

MFN status according to the WTO agreements

In its modern context as provided in WTO agreements, Most Favoured Nation (MFN) is a status or level of treatment granted by one country to another in international trade. The term MFN sounds like a contradiction in that it suggests special treatment but it actually means non-discrimination – treating everyone equally.

The MFN rule requires that a WTO member must apply same conditions on trade with other WTO members, i.e. a WTO member has to grant the most favourable conditions under which it allows trade in a certain product type to all other WTO members. The meaning of MFN status will become clearer through an example:

Suppose there are only 4 member nations in WTO – A, B, C, and D. Now if A lowers the duty on import of onions from B, then according to WTO rules it has to lower the import duty on onions from C and D to the same level.

MFN status is so central to the philosophy of free trade in WTO that it is the first article of the General Agreement on Trade and Tariffs (GATT).

There are exceptions to the rule of MFN. Nations can grant preferential treatment to developing countries, countries in regional Free Trade Areas and Customs Unions.

Benefits of MFN status

There are several benefits of MFN clauses:

• A country conducting international trade under MFN principles will have its imports provided by the most efficient supplier. This may not be the case if import tariffs varied for different countries.
• MFN rule is particularly advantageous for smaller countries that are not able to avail of the trade advantages that big countries often grant only to each other. By themselves, smaller countries would have been unable to negotiate the trade advantages which come with MFN rules, with bigger countries.
• It is also beneficial to domestic administration. The rules related to international trade are simplified and become more transparent if there are only one set of tariffs for a product from all countries.
• Finally, as MFN leads to non-discrimination among countries, it promotes the ideal of free trade in general.