Pakistan to Grant India “Most Favored Nation” Trade Status

March 20, 2014 Posted by India Briefing Reading Time: 2 minutes

DELHI – Pakistan is expected to soon grant Most Favored Nation (MFN) trade status to India. The announcement is expected to come after a special briefing meeting that will be headed by Pakistani Prime Minister Nawaz Sharif.

The announcement of the MFN status was previously planned to occur in February. This was delayed, however, due to disagreements over such issues as trade liberalization and the number of items that would be eligible to receive lower rates on duties.

Key to the success of the announcement is that Pakistan must agree to allow the importation of all commodities from India via the Wagah border and that Pakistan’s “negative list” (items not allowed for import) would be abolished.

Pakistan and India have experienced strained relations for much of their history. This tension was visible during the MFN negotiations as well. Because there are those in Pakistan’s government who find the idea of referring to India as a “Most Favored Nation” unpalatable, the government has stated that it will refer to the MFN agreement as a Non-Discriminatory Market Access, or NDMA, agreement.

The MFN agreement will liberalize trade between the two countries across their land borders. Due to flaring animosities in the past, these border areas have not seen much trade – it is hoped the new agreement will remedy this situation.

In particular, the liberalization will allow free passage to trucks and containers moving across the borders as well as making the visa process for merchants crossing the border much simpler.

The free passage clause of the agreement almost fell through due to an argument that developed after Indian authorities seized a Pakistani truck carrying 100kg of heroin at their border. Trade talks broke off for several months as a result.

Additionally, after the announcement of the MFN status has been made, India will reduce to 7.5 percent the duties Pakistan must pay; this will last for six months. After one year, the duties will be lowered further to five percent.

Both countries remain hopeful that they will receive a variety of economic benefits as a result of the new trade status for India.

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