Financial Express, 28 March 2006

Pakistan refuses to give MFN status to India even after Safta ratification

Amiti Sen

New Delhi, March 27 — Pakistan has decided not to give most favoured nation (MFN) status to India, even under the recently ratified South Asia free trade agreement (Safta), and has indicated that it will continue to trade with the country on the basis of a positive list.

According to officials sources, the MFN issue will dominate the third round of composite dialogue on economic and commercial co-operation in Islamabad on Tuesday.

Pakistan’s refusal to give MFN status to India is a blow to the country which had assumed that ratification of Safta would automatically lead to the extension of MFN as the agreement envisages a duty-free trading area within Saarc countries (Bangladesh, Nepal, Maldives, Sri Lanka, India, Pakistan and Bhutan) by 2018.The MFN status means that a country will treat another in the same way as it treats others.

The Indian delegation, led by commerce secretary SN Menon, will try to persuade Pakistan to change its mind and trade with India on the basis of a negative list (restricting only a few indicated items) as it does with other Saarc members, an official said. Under Safta, all members are bound to ultimately reduce the import tariffs to zero on all items except the ones mentioned in the negative list (including about 1,000 items for each country out of a total of 5,000 plus tariff lines).

However, if Pakistan remains firm on its resolve of not granting MFN to India, then India will get preferential access only on the 773 items which are presently mentioned in the positive list.

Since Pakistan trades with India on the basis of a positive list, it disallows import of all items that are not there on the list.

Officials said this would be against the rules of Safta and India could exercise the option of dragging Pakistan to the dispute settlement body of Safta.

However, history suggests that India may not take such an action for the sake of maintaining peace with its neighbour. India has refrained from taking Pakistan to the DSB of the World Trade Organisation (WTO) despite the fact that the WTO mandates that all members should extend MFN to each other. Pakistan refused to give MFN to India on the ground that the Kashmir issue has to be resolved first.