Mfn Status to India

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#3489, 18 November 2011|
India-Pakistan and the ‘Most Favoured Nation’: Why, why not and will it?Anureet Rai and Aryaman Bhatnagar Research Interns, IPCS
email: anureet.rai@gmail.com, aryaman.bhatnagar@gmail.com The status of Pakistan’s grant of ‘Most Favoured Nation’ (MFN) to India is in doubt. While the foreign ministry has given assurances that the decision would be implemented, an actual decision is yet to be taken. This raises several questions. Why did Pakistan agree to grant India the MFN status? What has led to the delay in the implementation of this decision? Will this decision ever be implemented?  

Pakistan’s decision to grant MFN to India is motivated by both economic and political factors. Given the asymmetric responsibilities India is willing to shoulder, this is a win-win situation for Pakistan. According to the Pakistan Business Council, bilateral trade is said to double over the next three years if this deal goes through.

Moreover, it will also help bring US$10 billion worth of illegal trade between the two countries, currently routed through Dubai, within the official channels. This is said to increase the annual GDP of Pakistan by 1-2 per cent. Increased production volumes increase Pakistan’s ability to beat down the price of imports critical to reducing import costs. Importantly, this would also mean a reduction in the import cost of energy-related raw materials, which may help reduce Pakistan’s energy problems. Finally, the traders, who comprise a large segment of Pakistani mercantile community will also benefit from the increased trade volumes that access to a larger market enables.

There could be two political motivations behind the granting of the MFN status. First, given that the establishment is under serious attack from all quarters within Pakistan, an economic surge would be seen, at least in the short term, as shoring up the status quo and boosting the morale of the Pakistani public. Second, given the increasing global and regional isolation of the Pakistani state, this provides vital strategic breathing space for Pakistan.

Despite all this, news emerged that the decision would not be implemented. Most of the opposition to this deal seems to have come from the industrialists, who cannot compete against Indian Economies of Scale and fear dumping. Moreover, India’s non-tariff barriers and protectionist policies are highly resented as well, being the main reason for the balance of trade being overwhelmingly in India’s favour. According to Huma Yusuf, a columnist for Dawn, ‘the pseudo backtracking’ is primarily to reassure the industrialists that their interests are also being taken into account. Further opposition to the implementation of the deal comes from the religious parties such as Jamiat Ulema-e-Islam (F) and Jamaat-e-Islami, who seem to have difficulty accepting ‘arch enemy’ India as the ‘most favoured’ nation.

It seems unlikely that such obstacles could prevent India from getting the MFN. The religious parties and the business...
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