India-Pakistan: Implications of MFN Status

December 29, 2011

According to 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.
Today, over 150 members of the World Trade Organization offer MFN status to other member countries. In addition, under regional trade agreements such as the South Asian Free Trade Agreement (Safta), the signatories offer the same to other partners so that all benefits of the various treaties are available multilaterally.
Pakistan was the only WTO member that had not given MFN status to India. India granted MFN status to Pakistan in 1996 and has been demanding that Islamabad reciprocate but political developments hurt progress on the issue.
Recently, Pakistan has granted MFN Status to India, thus now India enjoys the MFN status with all the WTO members.

Implications:

The move will boost trade between the two countries as Pakistan will now have a small negative list, where imports are restricted or banned. At present, Pakistan has a small list of items that are on the positive list resulting in negligible trade between the two neighbours. There is, however, thriving indirect trade with goods routed through third countries. With the negative list mechanism in place, costs will also come down as trade will take place directly.
Experts say MFN status for India will boost the Safta process and expand trade in the region. In addition, it is seen as one of the biggest confidence building measures that will boost diplomatic and political relations.
MFN status would help cut down on illegal and third country trade. Indian pharmaceutical, engineering goods, plastics, silk and cotton textiles are expected to benefit. Trade in commodities between India and Pakistan is also expected to get a huge boost.

What next?

Both countries looking to ease business visa rules to allow issue of multi-centre, multiple entry visas of longer duration. Also plan to liberalize investment rules