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Most Favored Nation Status (MFN)

  • 18 Feb 2019

Why is it in News?

India has recently withdrawn MFN Status from Pakistan due to terrorist attack at Pulwama.

What is the MFN Status?

Under rules of the World Trade Organization (WTO), a member country is not allowed to discriminate between trade partners and if a special status is granted to one trade partner, the country is required to extend it to all members of the WTO. This concept of treating all member countries alike is referred to as Most Favored Nation Status.

Say India grants Tax Exemption to the imports coming from Bhutan, then as per provisions of the MFN in GATT, it shall extend the same Tax Exemptions to all the members of WTO. Since, the formation of WTO, India has given MFN Status to all the member countries of WTO but India has not been accorded MFN Status from Pakistan.

Will Withdrawal of MFN Status hurt Pakistan?

Trade of India with Pakistan is meager ($2billion); so withdrawl of MFN Status is more symbolic rather than having economic impact on Pakistan economy. Other aspect of looking at the situation is that it will encourage illegal trade.