Microsoft word - most favorable nation
Most Favored Nation (MFN)
The members of the World Trade Organization (WTO) agree to accord MFN status to each
o Preferential treatment for developing countries.
As a general rule, MFN clauses promote non-discrimination among countries with the
A country that has been accorded MFN status may not be treated less advantageously than
any other country with MFN status by the promising country.
However, the terminology of MFN used in the WTO area is a misnomer as realistically WTO
has been unable to bound member countries to act solely according to its following principles:
o Every trading partner will be given equal treatment.
o If concessions have been offered to one WTO member, it must be offered to all other
Generally speaking, trade experts consider MFN clauses to have the following benefits:
o A country that grants MFN on imports will have its imports provided by the most
efficient supplier. This may not be the case if tariffs differ by country.
o MFN allows smaller countries, in particular, to participate in the advantages that
larger countries often grant to each other, whereas on their own, smaller countries would often not be powerful enough to negotiate such advantages by themselves.
a. Having one set of for all countries simplifies the rules and makes them more
b. It also lessens the frustrating problem of having to establish to determine which
country a product (that may contain parts from all over the world) must be attributed to for customs purposes.
o MFN restrains domestic special interests from obtaining measures.
a. For example, butter producers in country A may not be able to lobby for high
tariffs on butter to prevent cheap imports from developing country B, because, the higher tariffs, applicable to every country, may impair the interests of A’s principal ally C.
Non-Tariff Barriers (NTBs)
Generally speaking, NTBs refer to a range of actions, other than tariffs, that governments
Often bureaucratic in nature, the intention of NTBs is:
o To raise the prices of imported products to make them less attractive to consumers.
o To restrict the availability of imported products in favor of domestically produced
o Inordinate delays in customs clearance of goods.
o Frequent disputes over valuation of goods for determination of duties.
o Strictly applying standardization laws and charging composite tariffs.
o Hardships in issuing visas to traders.
MFN – Pakistan v India
After 16 years of signing up on the WTO, the domestic industry is still not prepared for
The industry is still trying to shy away from its commitments under the WTO with India. Pakistan needs to diversify its export destinations, as currently 50% of its exports go either to
Compared to all successful trading nations that build on their regional base; our regional trade
Experiences of many small economies, that developed closer relations with larger ones, show
a “win-win” situation for both sides.
a) Turkey’s agreement with European Union in 1996 (when its exports totaled a
mere $11.5 billion) for free movement of industrial goods resulted in its exports multiply five times to $61 billion.
b) Mexican exports to US more than quadrupled after it joined North American
Free Trade Area (NAFTA) in 1994, climbing from $60 billion to $280 billion per year.
India used to be a closed economy but it has gradually been opening up. In 1996 India gave Pakistan the MFN status but imposed NTBs. As per WTO rules, Pakistan was obliged to grant the same status to India but it declined. In 1996, Pakistan’s exports to India were $36.13 million as compared to its imports of
The balance of trade is still in favor of India as Pakistan’s exports to New Delhi are $264
million against imports of $1.7 billion.
At present many products are coming to Pakistan from India via Dubai with different brand
names, adding to cost of about $300 million to $700 million, annually.
Direct import of such raw materials and machinery from India would reduce its cost for the
local industries and would help increase our global exports.
India’s imports are now growing at a fast pace and Pakistan should try to get benefits from
The trade between two countries could double from the current level of $2.7 billion a year,
simply by re-routing of goods currently sent via Dubai or through some other channels.
Road blocks such as stringent visa rules, NTBs and others still need to be dismantled for full
Before announcing to phase out negative list the government should take input from those
industries that would be immediately exposed to competition.
Pakistani government must ensure that finished goods remain on the negative list until:
o Volumes of scale are reached to ensure comfortable position for Pakistani auto
Trade and economic activities with the neighboring country are likely to benefit public by:
o Providing them with the cheaper Indian products. o Creating a competitive environment for the industry
o Taking the country towards liberalization
o Giving them a choice through cost-quality scrutiny
It is true that Pakistani traders must be protected from the giant companies of India, but it is
equally true that Pakistani consumers also need protection against monopolies in the domestic market.
India; a frequent user of Dispute Settlement Body (DSB) of the WTO
DSB of the WTO makes decisions on trade disputes between governments that are
India has gone to the DSB of the WTO 16 times. Whereas, Pakistan has gone to DSB of the WTO only a few times. India has almost 300 trained lawyers in the trade area. Pakistan just has few lawyers.
India; a frequent user of Anti-Dumping
India is the world’s most frequent user of anti-dumping duties but most measures are applied
Despite frequent application of anti-dumping against Chinese imports, their mutual trade has
When India and China agreed to give MFN status to each other in 1984, their mutual trade
was very low but over the last 20 years, their trade has grown from less than $1 billion to over $60 billion in 2011.
So far there is no known case where India has imposed any anti-dumping duties on exports
Pakistani cement manufacturers have a combined installed capacity of around 44 million ton.
The demand of cement is about 31 million ton that consists of:
o 30 percent exports. o 70 percent local consumption.
When Pakistan started exporting cement to India, many exporters complained of difficulties
in meeting the Indian standards because of bureaucratic hurdles.
Local cement manufacturers are exporting cement to India through trains only.
The total export of cement, from Pakistan to India, is 350,059 tons. If India were to allow import of cement through Wahga border by road, Pakistani exporters
are likely to export upto 10 million tons as India is continuously facing a shortage and Pakistani cement is more competitive as compared to Indian cement.
The demand to grant MFN status to India was made after exporters complained about Indian
Auto Mobile Industry
Pakistan’s auto industry does not have economies of scale and is therefore less competitive
MFN status, however, is not likely to have any impact on Pakistan’s auto industry for the
foreseeable future since MFN status does not mean that tariff rates will be brought down to zero.
Currently custom duty and other taxes on imports of vehicles are more than 100 %, which
Pakistan has a small pharma industry compared with India but it is making quality products. It is already exporting medicines worth over $150 million to 45 countries and access to the
Furthermore, import of medicines into Pakistan is controlled through the drugs (import and
Pakistan is already allowing import of some high quality life saving drugs from India as these
are much cheaper as compared with importing from Europe.
Even common medicines like aspirin, amoxillin, ampicillin, ciprofloxine, famotidine,
laxotanil, ranitidin, whose import is not allowed are smuggled in, because they are cheaper.
Pakistan has comparative advantage in textile sector in particular bed-linen and towels.
In several light engineering products such as surgical goods, cutlery and sports goods
Pakistan has an edge and can get a good market share.
Views of Traders/Industrialists
It is anticipated that giving MFN status to India would lead to flooding of local markets with
Agriculture, pharmaceuticals and auto sectors are likely to bear the brunt of MFN because
Indian products in these sectors are much cheaper.
The industrialists are concerned about the dismal situation of:
o Poor infrastructure of industrial sector of the country.
Industrialists fear that giving incentives to India under the MFN would further damage
Pakistani traders have suggested ministry of commerce to probe the issues of state subsidy to
Indian exporters because they are afraid that this could hurt the interest of local industries.
Pakistani traders argue that Pakistan needs to protect its industry as international forces are
facilitating India to capture the market of Afghanistan.
Pakistani authorities were accommodating approximately 150 trucks of Indian consignments
India is only allowing 100 trucks of Pakistani consignment where as the volume of Pakistani
export has increased and touched a level of 150 trucks per day.
Indian custom authorities should make all efforts to clear at least 150 Pakistani trucks going
Custom authorities at both the sides should also allow 12 and 14 wheeler trucks other than 10
wheeler trucks and dumpers to overcome the issue of unnecessary delays in:
Often, Pakistani trucks come back without offloading due to non-availability of labour on the
Indian side, causing huge losses in the shape of extra transportation charges.
Indian authorities should ensure that labour force for offloading Pakistani consignments is
Protection of Fundamental Rights through Laws
To effectively encounter Indian threat, Pakistan’s industry needs to use Trade Defense Laws
Every Pakistani businessman can approach High Court to protect its fundamental rights if:
o The businessman feels any threat from the granting of the MFN status to India, and
o Meaningful consultations in the relevant industry have not been provided by the
Quite recently, the Islamabad High Court has exercised its jurisdiction to protect the local
Stance of Pakistani Government
Pakistan has decided to award MFN status to India by removing all trade barriers by
Pakistan has finalized the following three confidence-building agreements with India, for the
o Customs Cooperation Agreement to avoid arbitrary stoppages of goods at each
o Mutual Recognition Agreement for standardization of quality standards and
acceptance of certificates of internationally accredited laboratories, in this regard.
o Redressal of Grievances Agreements in case of any disagreement.
Pakistani government has linked the implementation of the pact to more agreements as an
exercise to ensure level playing field to protect the interest of Pakistani traders (threatened by the export potentials of a huge economy like India).
According to the Pakistani government, it has kept all the stakeholders on board and all
further decisions will be made with the mutual agreement.
Cabinet has directed Ministry of Commerce to complete the trade normalization process for
o Announcement of the negative list by February, 2012. o Phasing out the negative list after the approval from the cabinet.
Ministry of Commerce (MoC)
MoC had sought suggestions from all the stakeholders including the industry, chambers of
commerce and trade associations to recommend items with justification to be included in the negative list.
MoC has proposed the government to allow the ministry to replace the positive list of 1,963
tariff lines with a negative list of 636 tariff lines, for imports from India.
The negative list of 636 tariff lines, as suggested by MoC, comprised of:
MoC has further asked the government to empower it to progressively phase out the negative
list in three installments on quarterly basis, after approval of the cabinet, with quarters ending on:
MoC has indicated that the whole exercise would be conducted in consultation with the
Institute of Business Administration (IBA), Karachi and other stakeholders.
MoC has also sought government’s approval to make appropriate changes in trade defense
laws in consultation with stakeholders for using these laws more effectively against any:
o Injury to the local industry by Indian imports.
MoC is of the view that although the tariff applied on Indian imports is the same as for any
other WTO member state, but Pakistan has India specific goods restriction in terms of positive list that allows import of only 1,993 tariff lines from India.
Stance of Indian Government
The delay in the clearance of cement export was only because of the poor infrastructure at
A big customs complex with the cost of $30 million would be operational in three months at
Custom complex will enable the customs authorities to handle more trucks on daily basis. Indian customs representative ensured Pakistani businessmen that the new automatic custom
o The number of trade consignments from Pakistan to India.
A liaison committee is also being formed to resolve custom related issues on both sides. The peak tariff line in India, for Pakistan, is going to be down from eight percent to five
Major problem between the two countries is the lack of institutional and communication
To overcome these problems, India is working of three tier solution:
o Daily or local problems at Wagha Attari border would be handled at their own level.
o One meeting between the custom collectors of both the countries at least once in two
o One meeting of ministerial level regarding policy matters would be held in every six
Central banks of India and Pakistan would open their branches in both countries to provide
banking facilities for exporters and importers in both the countries.
Mutual Understanding of Pakistani and Indian Government
India has agreed to the three agreements, presented by Pakistan, and has finalized them. The agreements are expected to be signed by the Indian commerce minister next month.
Both the sides have also finalized a very liberal visa regime and would be place as soon as
cabinets in the two countries grant approval.
Although giving MFN status to India has prohibited discrimination in trade, but still Pakistan
We should move forward very cautiously as our fast forward action in this area can lead to
some decisions that may not be favored for our industries.
A full fledge campaign must be launched soon to educate local industries of the challenges
and opportunities in the post-MFN trade regime with India.
By making use of the relevant laws, the industry can get five to ten years protection even after
Private sector needs to revive its Associations and Chambers to come with a joint strategy for
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