Myths regarding MFN status to India


The Most Favoured Nation status conferred upon India is the talk of the town nowadays and a lot of hue and cry is being raised on it. Certain misconceptions about it have made it controversial. The very first thing is that the term is a misnomer. It does not mean that India will become a more favoured country. This only implies that Pakistan will give the same treatment to imports from India as it does to imports from the US, China, Sri Lanka or Thailand, etc. Hence, granting of MFN status would not mean that India will have preferential treatment over any other country.

Presently, Pakistan allows import of all items subject to customs duty and other import duties but India does not have the right to import all these items as we have maintained a special positive list of about 1100 items that can be imported. After the MFN status is conferred, this list would be replaced by a negative list of items whose import would remain restricted. This means that all other items that are not included in this list would be allowed to be imported at normal tariffs as is allowed for all other countries of the world.

The notion that India may be the main beneficiary, while Pakistan with a smaller economy may be at losing end is also misplaced. The experience of many other smaller economies, which developed closer trade relations with bigger ones through Free Trade Areas or Customs Union or otherwise, shows that it is a “win-win” situation for both sides but the smaller economies have in general benefitted more from such arrangements. Bangladesh has been at win-win situation since it entered into a Free Trade Agreement with India.

Then there is a fear that India has a stringent import policy (with many non-tariff barriers) and would be able to increase its exports at a greater pace than imports. In this regard, one should not be oblivious of the fact that India has no Pakistan specific non-tariff barriers. Its economy was closed till 1990 but since it started on the liberalisation process in the early 90’s, on average its imports have grown at an average of 34 percent whereas its exports have grown by about 18 percent.

Another impression that some industries in Pakistan such as automobiles and pharmaceuticals may find it difficult to compete and may have to close down need to be dispelled. Let’s believe the truth in the fact that Pakistan’s automobile and pharmaceutical industries are much less competitive as compared to India’s and if Pakistan were to allow open competition, it may not be able to compete. The answer of this misconception is that Pakistan does not have to open these sectors necessarily and can continue to maintain the same restrictions as it is doing for other countries.

Then comes the mother of all misconceptions associated with MFN status to India. Pakistan has kept linking grant of MFN status with solution of Kashmir issue, but this strategy hasn’t born any fruits. Bangladesh opened trade with India and then has successfully resolved its long-standing border dispute. The two countries recently concluded a land boundary agreement to demarcate their 4,000km shared border.

It quite misplaced to say Pakistan has taken this decision in haste. Rather, Pakistan has taken a long time to come to this decision. During the last 20 years, it conducted several studies to see the impact of opening trade with India. India granted MFN status to Pakistan in 1996 and it has taken over 15 years to consider giving reciprocal status. It is not a decision being taken in haste. However, where it is almost certain that this move is going to benefit both the neighbours, one should not be oblivious of the fact that granting of MFN status would not mean opening of trade overnight. It will take time to develop to its full potential.


Mandi Bahauddin