Hurdles in Granting Most Favored Nation Status To India

TABLE OF CONTENTS

Introduction Types of MFN The free rider problem Literature Review & Theoretical Framework Equation and framework Trade Relations between Pakistan and India

Pakistan grants MFN to India...! Positive List Negative List

Opposition to MFN Analyzing MFN status Conclusion

INTRODUCTION

MFN requires all trading partners to be treated as if they were 'the most favored nation'.

Any preferential treatment given to one country

shall be extended to all the third parties without

any exception or qualification.

MFN

was

incorporated

into

World

Trade

Organisation with its establishment in 1996.

TYPES OF MFN:
Unilateral Reciprocal
Unconditional

Conditional

Un/Limited

THE FREE RIDER PROBLEM IN MFN

Lets assume that in an agreement b/w countries X and Z, X grants Z certain rights which it has not granted to country Y in an earlier agreement with an MFN clause; country Y can now claim the additional rights granted to Z. The original contractual balance between X & Y gets upset, since the MFN clause has added additional obligations to country X, without imposing any other obligations on country Y. To address this, the conditional MFN clause is extended on the condition of strict and specific reciprocity.

GATT QUALIFICATIONS;
1. 2.
3.
GATT signatories agreed to give MFN status only to the other contracting parties thereby withholding any preferential treatment from the non-signatories.

GATT signatories must engage in negotiations for lowering trade barriers & tariffs.

The 'binding tariffs' system via negotiation of GATT operated gave protection against any increase in tariffs later by states.

LITERATURE REVIEW
Pakistans Relation with India: Beyond Kashmir. Political Dominance or Economic Gains: A Case Study

of India-Pakistan Trade and Perceptions of the People

of Pakistan, Afsheen Naz. India and Pakistan The Economic Stand-Off, Sajjad Ashraf. India Pakistan Trade Possibilities and Non-tariff Barriers, Nisha Taneja. India Pakistan Trade Relation, Javid Ahmad Khan.

MODEL/FRAMEWORK

Where; BL= Bilateralism

PB= Political barriers

EB= Economic barriers SI= Security Issues

CONTINUED
Natural barriers
Distance, Geography

MFN
Artificial barriers
History, Political, Economic & Security Barriers

INDO-PAK TRADE RELATIONS

Three-fifth

of Pakistan exports used to enter Indian market and one-third of Indian exports came to Pakistan.

During

194849, 70% of Pakistans trading transactions were with India, while 63 % of Indian exports went to Pakistan. These figures have fallen since then. the bilateral trade between India and Pakistan is heavily tilted in Indias favor. Out of the total $1.5 billion in trade between the two countries, nearly $1.2 billion are Indian exports to Pakistan, making Pakistans trade deficit with India close to $900 million a year.
it had a potential to reach up to US$ 5-10 billion than its current levels.

Today

Although

CONTINUED

Most of the $2-3 Billion trade (informal) every year is done through third country transit routes provided by United Arab Emirates, Singapore and Dubai as they have free ports.

This has huge transportation cost on both India & Pakistan.

Following are the other constraints which have been put in place by respective governments on the bilateral trade are:

high tariffs & nontariff barriers maintained by India, Restrictive trade regimes of both countries, Inadequate infrastructure (Poor road & railway transportation linkages & sea shipments constrained by both limited port facilities),

Bureaucratic regulations & restrictions,

CONTINUED
Excessive

red tape , Direct political or public

opposition.
Lack Lack Visa

of investment opportunities,
of banking sectors,

constraints, cumbersome payments, customs

procedures further limit the bilateral trade.

PAKISTAN GRANTS MFN TO INDIA...!

Positive List
MFN status would require Pakistan to put India on parity with other countries and allow import of all items, instead of just 1,934 (as of September 2009) items currently stated in the positive list. To avoid this negative list would be formulated instead with effect from 2012.

Negative List
Negative list has items that cannot be exported by India to Pakistan even after the grant of the status of Most Favored Nation (MFN). It contains items on which the government imposes import duties to protect the local industry. The negative list will be finalized and ratified by February 2012 which currently has 12000 items.

Opposition Leader in IHK legislative Assembly said to introduce a resolution in the Assembly against MFN status for India. Other parties in the AJK including AJK People's Party, Muslim Conference (MC), Jamat-e-Islami and Pakistan Muslim League (Nawaz) also protested in the demonstrations in Muzzaffarabad. The PML-N AJK President Raja Farooq Haider said, "..... Indian multinational companies have monopolistic position in the regional and international trade. They would outwit Pakistan. The balance of trade does not favour us." Haider suspected that India, using some neighboring states was lobbying to "Push Pakistan and China to the wall." Jamat-ud-Dawa believed that MFN status has to be a decision of a product of united will of people and political leadership. The Istehkam-i-Pakistan Karwan rally from Minar-i-Pakistan to Nasser Bagh was staged in opposition to the MFN decision for the following reasons: Indian atrocities against Kashmiris; no MFN until resolution of Kashmir issue, USA instructions behind granting of MFN status to India by Pakistan, Indian hold of five rivers water of Pakistan, threat of Indian spies to carry out espionage activities in Pakistan.

OPPOSITION TO MFN

CONTINUED
The industrialists view is that by giving incentives to India under MFN will threaten the already feeble industry of Pakistan. In India the politicians have accused the ruling Party Congress to have improved relations Pakistan even when the Pakistans non-state actors have been carrying out terrorist activities in India.
Pakistan's military establishment has also showed reservations about granting India MFN over the belief that in a post-US Afghanistan, India would be competing for trading opportunities. But Premier Y.R. Gillani has said that the main stakeholders in this issue of MFN are the business communities and stock exchanges of both countries in a legitimate sense

Conclusion

THANKYOU

ALL...!