PULWAMA ATTACK: MAKING PAKISTAN PAY THE PRICE
- India has revoked Pakistan’s Most Favoured Nation after the Pulwama attacks, and increased duties for imports from Pakistan by 200%.
- The status was given to Pakistan in 1996, but never reciprocated.
- Given the miniscule trade between the two countries, the decision is welcome, but largely symbolic.
- India needs to go further and push for Pakistan’s international isolation financially, unless it mends its ways.
A day after the deadly terrorist attack in Pulwama, Kashmir that killed 49 CRPF personnel, India has revoked the most favoured nation (MFN) status. India has also increased the basic customs duty on all products imported from Pakistan to 200%.
India had accorded MFN status to Pakistan in 1996. MFN status is given to a trade partner to ensure non-discriminatory trade vis-à-vis other trade partners. Under WTO rules, India has accorded MFN status to all nations, as it is not allowed to discriminate between countries. But in return, Pakistan had offered India a Non-Discriminatory Market Access Agreement, citing border conflicts and political mistrust.
Pakistan’s cabinet had also formally agreed to give India MFN status on November 2, 2011, but it did not get implemented. In March 2012, Pakistan substituted a positive list of 1,950 tariff lines with a negative list of 1,209 tariff lines whose import from India was blocked. But it has always stopped short of giving MFN status to India.
HOW EFFECTIVE WOULD THE MEASURE PROVE TO BE?
MFN does not technically imply preferential treatment, but it means non-discriminatory treatment. This includes the lowest possible trade tariffs, minimum trade barriers, reduced bureaucracy and highest import quotas available. MFN is therefore extremely beneficial to developing countries, especially in the case of intra-regional trade.
NITI Aayog Vice Chairman Rajiv Kumar commented on the decision to PTI:
“The impact of India’s decision to withdraw MFN status on Pakistan economy, which is already in deep trouble, could be significant. On the other hand, India’s exports are marginally dependent on Pakistan’s market and these can be successively diverted to markets in the Middle East.”
However, revoking MFN status in the case of Pakistan is not as effective a punitive measure as it sounds. In the year 2007, Indian Council of Research on International Economic Relations (ICRIER) had projected that both nations had bilateral trade potential of US$ 11.6 billion.
While tradedid grow by almost three and a half times during 2000-01 to 2005-06 (from US$ 251 million to US$ 869 million per annum), but has grown far slower since. India’s trade with Bhutan is over half that of its trade with Pakistan. But then Bhutan is far smaller as a country.
India’s key exports to Pakistan include cotton, dyes, chemicals, vegetables and iron and steel, while imports include fruits, cement, leather, chemicals and spices.
The low volumes of trade would keep the impact quite limited. Bilateral trade between India and Pakistan reached US$ 2.4 billion in 2017-18. Pakistan’s exports to Indiastood at US$ 488 million in 2017-18, which is 0.1% of India’s imports. Exports to Pakistan on the other hand were nearly four times at US$ 1.9 billion, which is 0.63% of India’s exports. But if exports of input materials like chemicals and cotton to Pakistan are stalled, it will increase input costs for some Pakistani industries.
TIME TO ISOLATE PAKISTAN FINANCIALLY:
The masterstroke on the other hand to hit Pakistan financially will be to isolate it internationally and prevent international agencies from funding its largely bankrupt economy. Pakistan has already come under the grey list of the Financial Action Task Force in June 2018 for laundering and terror financing. It is on notice and faces blacklisting if it does not prove that it has taken sufficient steps to curb this menace of terror financing.
The FATF blacklist would deem Pakistan to be “non-cooperative” in the global fightagainst money laundering and terrorist financing. It could lead to downgrading of Pakistan by multilateral lending agencies like IMF, World Bank, ADB, EU a lower risk rating by the likes of Moodys, S&P and Fitch. India is about to present a dossier on Pakistan’s connection with the Pulwama act at the latest FATF meeting during February 17-22.
After the latest dastardly attack by Pakistan-based terror group
Jaish-e-Mohammed, half measures are out of the question. Through all possible means, it is time to finally bring Pakistan to its knees.
Revoking of the MFN status has largely symbolic value. Putting Pakistan on the FATF blacklist should now be the ultimate objective.