India revokes MFN status to Pak after Pulwama attack; mulls punitive trade curbs

PTI
Friday, 15 February 2019

"As the Cabinet Committee on Security (CCS) has decided to withdraw the most-favoured nation status to Pakistan, the government can take punitive actions under the Customs Act and the Foreign Trade (Development and Regulation) Act," sources said.

NEW DELHI: India on Friday revoked the most-favoured nation (MFN) status to Pakistan in the aftermath of Pulwama terror attack and, according to sources, is considering punitive actions like significant hike in customs duties, port restrictions and ban on goods imported from the neighbouring country.

In a media briefing after the meeting of the Cabinet Committee on Security (CCS), Finance Minister Arun Jaitley said the MFN status to Pakistan stands revoked.

Withdrawal of the MFN status would significantly hit Pakistan's exports to India, which stood at USD 488.5 million (around Rs 3,482.3 crore) in 2017-18.

"As the Cabinet Committee on Security (CCS) has decided to withdraw the most-favoured nation status to Pakistan, the government can take punitive actions under the Customs Act and the Foreign Trade (Development and Regulation) Act," sources said.

Under these laws, the government can restrict trade of certain goods, significantly increase customs duties and impose port-related restrictions on Pakistani goods, they said.

The main items which Pakistan exports to India include fresh fruits, cement, petroleum products, bulk minerals and ores and finished leather.

India granted the MFN status to Pakistan way back in 1996, but the neighbouring country had not reciprocated.

The MFN status was accorded under World Trade Organisation's (WTO) General Agreement on Tariffs and Trade (GATT). Both India and Pakistan are signatories to this, and are members of the WTO.

Under the MFN pact, a WTO member country is obliged to treat the other trading nation in a non-discriminatory manner, especially with regard to customs duty and other levies. Withdrawal of the status would mean that India could impose heavy customs duties and discriminate Pakistani goods vis-a-vis similar items of other trading partners.

In 2012, Pakistan had committed to giving the MFN status to India but retracted later due to domestic opposition. Instead of MFN, Pakistan said it was working on granting Non-Discriminatory Market Access (NDMA) status to India but that also was not announced.

Total India-Pakistan trade has increased marginally to USD 2.41 billion in 2017-18 as against USD 2.27 billion in 2016-17. India imported goods worth USD 488.5 million in 2017-18 and exported goods worth USD 1.92 billion in that fiscal.

Another official source said that it is not obligatory on the part of India to inform the WTO about its decision as it has invoked security clause of the multi-lateral trade rules. India has invoked Article 21 of the WTO which talks about security exceptions.

The government would soon come out with a list of Pakistani items which would face restrictions or high duties.

India mainly exports raw cotton, cotton yarn, chemicals, plastics, manmade yarn and dyes to Pakistan.

Trade experts said that this decision would not have a major implication on bilateral trade between the countries as the value of trade is below USD 3 billion (around Rs 21,385 crore) annually.

"The government should take a carefully crafted step as India's exports are more than imports. If Pakistan will take retaliatory actions, then it would impact more to India," international trade expert with Indian Institute of Foreign Trade (IIFT) Rakesh Mohan Joshi said.

Professor Biswajit Dhar of Jawaharlal Nehru University (JNU) said that Pakistan mainly exports to India through Dubai and Singapore, "so we need to target that also".

The CCS meet was chaired by Prime Minister Narendra Modi to discuss the security scenario in Jammu and Kashmir in the wake of the Pulwama terror attack.

At least 37 CRPF personnel were killed and five injured on Thursday in one of the deadliest terror attacks in Jammu and Kashmir when a Jaish suicide bomber rammed a vehicle carrying over 100 kg of explosives into their bus in Pulwama district. 

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