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Review of MFN status to Pakistan may prove key to PM Modi’s economic war

After the Indus Waters Treaty (IWT) review decision, the prospective MFN status review will seek to send a strong message to Pakistan regarding India’s intent to isolate Pakistan internationally.

Written by Kanishka Singh | New Delhi |
September 27, 2016 1:33:54 pm
narendra modi, mfn status, mfn status pakistan, PM Modi, PM Narendra Modi, nawaz sharif, most favoured nation, MFN review, MFN, indus waters treaty, pakistan, india, india pakistan relation, uri terror attack, sushma swaraj, unga, India news, indian express news India granted MFN status to Pakistan in 1996. (Source: AP photo/File)

India’s move to review the Most Favoured Nation (MFN) status given to Pakistan is a manifestation of Prime Minister Narendra Modi’s calculated economic isolation strategy of war without bullets, as a response to Pakistan after the Uri terrorist attack. After the Indus Waters Treaty (IWT) review decision, the prospective MFN status review will seek to send a strong message to Pakistan regarding India’s intent to isolate Pakistan internationally. The move itself may not have much impact on Pakistan’s economy as bilateral trade is very low between the two neighbours. Although, in the larger scheme of things it will prove to be a key aspect of India’s renewed Pakistan strategy.

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Prime Minister Narendra Modi may choose to take Pakistan to the World Trade Organisation’s (WTO) Dispute Settlement Body. This will allow India to remove trade benefits afforded to Pakistan under MFN status granted by India.

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According to WTO rules: “Countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members).”

WTO explains that “MFN 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.”

India granted MFN status to Pakistan in 1996. Pakistan has still missed all committed deadlines to reciprocate. The closest it got to giving India MFN status was in 2012 but the move collapsed. PM Modi’s visit to Pakistan earlier this year had preferential trade treatment under SAFTA as a major agenda.

The economic war may also include steps like withdrawing concessions provided to Pakistan under provisions of the South Asian Free Trade Area (SAFTA) agreement. SAFTA members are Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Members of SAFTA are unlikely to stand against India in light of the recent events and the reactions witnessed from all countries on Pakistan’s stand on terrorism over Uri and Pathankot attacks.

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Bilateral trade between both the countries remains at an abysmal level. In 2015-16, it was recorded at a meagre $2.61 billion up from $2.35 billion in the previous fiscal. If India has to respond without military offensives, it can look at stopping all trade and diplomatic ties with Pakistan. Further, dropping trade ties with Pakistan prepares ground for India to urge its economic and strategic partners to impose sanctions on Pakistan to remove the possibility of economic benefits to Pakistan being used to finance terrorist organisations.

India has committed to not taking Pakistani attacks on India lightly and knocking on the foundations of the country–trade, economy, foreign aid and international goodwill. PM Modi’s plan to isolate Pakistan economically will be crucial as he chooses peaceful retaliation on Pakistan. The success of this plan will be make or break for him and his government as they heed to an agonised Indian public.

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