Next in line: PM Modi to review Pakistan’s Most Favoured Nation’s status

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The MFN status, contrary to what the name suggests, does not accord any special treatment to Pakistan. By granting MFN status, India just committed itself to non-discrimination; in other words, it committed to treat Pakistan the same way as it would treat every other WTO member country in terms of tariff being imposed on goods. In fact, each WTO member treats all other members equally as “most favoured” trading partners.

Pakistan has, however, not reciprocated and has resisted granting India the same MFN status, on the pretext that trade normalisation takes away the leverage Islamabad has during the composite dialogue between the two countries.

The issue of Pakistan not granting MFN status has long been raised at bilateral discussions between the two countries. In fact, a deal was almost clinched in 2012 during the visit of the then Minister of Commerce and Industry, Anand Sharma, to Pakistan. However, domestic political developments in Pakistan and opposition from radical elements had held back the government from announcing it.

India-Pakistan trade has been much below potential despite the signing of the South Asian Free Trade Agreement in January 2004 when NDA-I was in power and Atal Bihari Vajpayee was Prime Minister. In the last 10 years, two-way trade has crawled to $2.7 billion in 2014 from $600 million in 2004. In 2015-16, India exported merchandise worth $2.17 billion, making up just 0.82 per cent of its total exports. Imports from Pakistan were $441.03 million, or 0.11 per cent of India’s total imports.

In fact, India enjoys a favourable trade balance with Pakistan. In 2015-16, India had a trade surplus of $1.73 billion. Principal exports from India include vegetables and raw cotton. Indian traders claim while Pakistan may have nothing to lose if trade is blocked, it will cut off a big alternative market for Indian farmers, especially from Punjab.