What is the 'Most Favoured Nation' status and what does its withdrawal mean for Pakistan?

India announced on February 15 that the 'Most Favoured Nation' (MFN) status given to Pakistan stands withdrawn, in the wake of the heinous terrorist attack in Pulwama district of Jammu and Kashmir the previous day, which left over 39 CRPF personnel dead. Jaish-e-Mohammed claimed responsibility for the attack.

But, what is the significance of this status and what will Pakistan lose after it is taken away?

What is MFN?

The Most Favoured Nation clause is the first clause in the General Agreement on Tariffs and Trade (GATT) by the World Trade Organisation (WTO). It is a treatment accorded by one state to another to ensure non-discriminatory trade practices between the two countries vis-à-vis other trade partners.

This clause requires countries to provide any concessions or privilege granted to one nation, to all other World Trade Organisation (WTO) member countries. Even though the term suggests favouritism towards one particular nation, it stands for equal treatment of all countries with regard to trade.

Pakistan stands to lose concessions on tariff, freer markets and a free flow of goods that come with the MFN status. These perks are beneficial for the participating countries as they provide local goods wider access to markets, but it may also lead to price wars and make domestic industries vulnerable.

When did India grant MFN to Pakistan?

India gave Pakistan the status in 1996, a year after the WTO was formed. Prime Minister Narendra Modi had put the status under review after the Uri attacks of 2016, but it was only revoked earlier today after the Cabinet Committee on Security met to discuss the security situation in Kashmir.

Pakistan, however, did not grant India the same status. In November 2018, Pakistan government officials had said they did not have any immediate plans to grant India the status but they were working on free trade agreements with many countries, including China.

Trade between India and Pakistan

Bilateral trade between the two Southeast Asian neighbours is pegged at $2 billion. They trade in commodities and goods including sugar, cement, chemicals, cotton, vegetable and fruits, mineral fuels and salts.