India has revoked the Most Favoured Nation (MFN) status to Pakistan in the aftermath of the terror attacks in Pulwama but the government now has the complex task of deciding the items on which higher import duties or a ban can be imposed.
“New Delhi will have to weigh all its options before announcing measures as it could lead to reciprocal actions in Pakistan. The decision will have be taken through inter-ministerial consultations at the highest level, including officials from the PMO, Finance Ministry, Commerce Ministry and the Ministry of External Affairs,” a government official told BusinessLine. India had granted MFN status to Pakistan in 1996 to align itself with WTO rules which require members to impose the same import tariffs on all signatory countries. Pakistan, however, does not accord the same status to India although it has brought down restrictions on a large number of imports from the country over the past decade.
Since India has decided to withdraw MFN status to Pakistan using the security clause, it will neither have to take permission of the World Trade Organization to do so nor will it have to stay within bound rates (import tariff ceilings) it has committed itself to at the multilateral forum, the official clarified.
“The government will only have to internally notify the decisions we take, such as raising duties or banning imports, like it normally does,” the official said.
“In case India’s move is challenged by Pakistan at the WTO, New Delhi would defend itself by citing Article 21 of the WTO, which is the same Security Exceptions Article used by the US to impose higher import duties on aluminium and steel, or the Foreign Trade (Development & Regulation) Act,” the official added.
Pakistan’s exports to India were at $490 million in 2017-18 while India’s exports to the country were about $2 billion. But India, being a much larger economy, is better placed to absorb the negative fallout of a dip in trade.