India revokes MFN status to Pakistan in Pulwama attack fallout: What it means

India had accorded MFN status to Pakistan in 1996 and did not withdraw it even during 1999 Kargil War or during 2008 Mumbai attacks.

In a major diplomatic move, India on Friday withdrew the most favoured nation MFN) status accorded to Pakistan in its bid to convey a strong message to the country in the aftermath of Pulwama terror strike. The decision to revoke the MFN status to Pakistan was taken at a meeting of the Cabinet Committee on Security (CCS) chaired by Prime Minister Narendra Modi at his residence in New Delhi early this morning.

The CCS meet was called to discuss the security situation in the Kashmir Valley and frame broad strategy to meet the challenges posed by terrorism in the state. Briefing media on the CCS meet, which is rarely done, Union Finance Minister Arun Jaitely talked about India having “incontrovertible evidence” against Pakistan to link it with Pulwama terror attack.

Militants targeted a convoy of 78 vehicles carrying more than 2,500 Central Reserve Police Force jawans from Jammu to Srinagar on Thursday.

“The most favoured nation status granted to Pakistan stands withdrawn,” said Jaitley outside 7, Lok Kalyan Marg, emerging from the CCS meet, which was also attended by Union Home Minister Rajnath Singh, Defence Minister Nirmala Sitharaman, External Affairs Minister Sushma Swaraj and National Security Adviser Ajit Doval.

What is MFN status?

According the MFN status is an obligation on all the member countries of the World Trade Organisation (WTO), which came into being in 1995. Both India and Pakistan are members of the WTO, which works towards removing trade barriers and check discriminatory international trade practices.

India accorded the MFN status to Pakistan a year after the formation of WTO. However, Pakistan never reciprocated the move, largely due to its domestic political equations. In November 2011, Pakistan government approved according MFN status to India but the decision could never be implemented.

How did Pakistan respond to MFN status then?

Pakistan prepared a ‘positive list’ of nearly 2,000 items that it allows to be imported from India and a ‘negative list’ of over 1,200 items, which can’t be traded from the country. This was done in accordance with Non-Discriminatory Market Access (NDMA) agreement adopted by many countries.

Did MFN status give Pakistan extra advantage?

The MFN status accorded to any country does not make the country entitled to preferential treatment in bilateral trade. It rather eliminates discrimination compared to tariff offered to other countries.

The WTO provision provides for equal treatment to all its members. This is aimed at increasing competition in trade. Trade volume between the two countries is worth about $2.30 billion, which is less than 0.40 per cent of India’s total trade.

So, why did India revoke MFN status?

Pakistan enjoyed the MFN status for nearly 23 years. India did not withdraw the MFN status even during the Kargil War of 1999, or terror attacks on Parliament in 2003 and in Mumbai in 2008 or in the aftermath of the Uri attack, in which 19 soldiers were killed in 2016.

Special forces of the Indian Army conducted a surgical strike by crossing the Line of Control (LoC) to “avenge” the deaths of jawans at Uri army camp. But the government did not revoke MFN status to Pakistan.

In a statement made in Parliament in January 2018, the ministry of external affairs had said that there was no proposal under discussion for withdrawal of MFN status accorded to Pakistan.

On Friday, India gave a signal for more muscular policy towards Pakistan. Besides withdrawing the MFN status, the CCS decided to “initiate” steps for complete isolation of Pakistan in the wake of its continued support to terror outfits carrying out attacks in India.