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As Reuters informs us:

The World Trade Organization's 164 members commit to treating other members equally so they can all benefit from each other's lowest tariffs, highest import quotas and fewest trade barriers for goods and services. This principle of non-discrimination is known as most favoured nation (MFN) treatment. [...]

There is no formal procedure for suspending MFN treatment and it is not clear whether members are obliged to inform the WTO if they do so.

India suspended Pakistan's MFN status in 2019 after a suicide attack by a Pakistan-based Islamist group killed 40 police. Pakistan never applied MFN status to India.

Both India and Pakistan appear to have joined the WTO in 1995. And both countries seem to have been GATT members (precursor to WTO) since 1948.

So, how comes Pakistan never granted India MFN? 25 or so years seems like a long time to not implement a treaty. (And even more if counting from GATT joining.) Was there any litigation (through WTOs dispute resolution) related to this? Or did Pakistan invoke the sanctions-related exceptions in the WTO/GATT treaties, and India didn't contest this?

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    Before the ban, India had a trade surplus with Pakistan, so they could kind of afford to not contest this. Maybe they thought that trade improves political relations.
    – NoDataDumpNoContribution
    Mar 15, 2022 at 9:29
  • There are many exclusions to the rule, e.g. national security and rules governing trading blocs like the EU; I don't know what Pakistan or India have said about it though, if they claimed exemptions or if the exemptions were reasonable.
    – Stuart F
    Mar 15, 2022 at 14:25

2 Answers 2

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Trade between the two countries is minimal. However Indian exports account for 80% and its imports for 20%.

India does not discriminate either imports or exports to Pakistan. Till 2011, Pakistan had a limited ‘Positive List’ of 1,946 items that were 'allowed' to be imported from India. Post 2011 it shifted to a ‘Negative List’ (1209 items) that were banned from imports.

Both countries allow investments from each other countries with some restrictions in certain areas.

Since the bilateral trade balance is heavily loaded in India’s favor, protectionism is probably one of the main reasons given by Pakistan for not conferring the MFN status on India. Unkindly the Pakistan army (which effectively controls the country) have often been blamed for not allowing trade to flourish on the premise that trade would be a big hurdle in the peace prospects.

Since relationships have deteriorated further in the last years, trade has taken another big blow between the two countries. However, the enterprising businessmen of both countries, continue to do business ... unofficially... routing the goods (and money) through Dubai.

World Bank reports claim there is a potential of 35 Billion USD between the two countries.

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  • What about non-tariff barriers that India put in place?
    – user366312
    Mar 26, 2022 at 3:44
  • @user366312. Post 2019. The trade has trickled to a bare minimum. Pakistan has placed India's trade status to be on par with Israel, India has retaliated by withdrawing the MFN status for Pakistan.
    – Gn4
    Mar 26, 2022 at 5:03
  • I am not talking about post-2019. I am talking about from all the way back to 1995.
    – user366312
    Mar 26, 2022 at 5:08
  • Pakistan has placed India's trade status to be on par with Israel, India has retaliated by withdrawing the MFN status for Pakistan. -- this is a blatant lie. Pakistan banned trade with India after the revocation of article 370 on 31 October 2019. India revoked Pakistan's MFN status on 15 February 2019.
    – user366312
    Mar 26, 2022 at 5:13
  • @ user366312 You are right India revoked Pakistan’s (MFN) status after the Pulwama terrorist attack! Didn't make a great difference trade-wise until the trade ban by Pakistan. A month after the ban, Indian exports to Pakistan were down 76% and the Pakistani imports to India were down 98% The ban affects both, Pakistan buys mainly cotton (No 1 import source: India) Organic Chemicals (India is No 2 import source) India is also the 3rd largest import source for sugar. India imports fruits/nuts and construction material from Pakistan (Pakistan is not a large import source)
    – Gn4
    Mar 26, 2022 at 6:20
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Basically, for three reasons:

  1. According to the GATT agreement, a country is obligated to grant free access only to those products that are committed.

  2. Although India granted an MFN status to Pakistan, it has kept non-tariff barriers in place. Therefore, this could have been a major moot point in the event of litigation.

  3. The trade balance was overwhelmingly in favor of India -

... Pakistan’s export to India remained at $410 million. On the other hand, India’s export to Pakistan stood at $1.81 billion ...

Therefore, there was no need for litigation from the Indian point of view.

Can you be a bit more specific about what non-tariff barriers India imposed that significantly curtailed Pakistani exports?

Here is a full report published by the Pakistani trade authority about Indian non-tariff barriers.

The following are my additions:

  1. Local vandalism:

  2. India didn't let Pakistani cement-carrying trucks or cargo trains enter India.

  3. India increased tariff on Pakistani textiles which is one of the major exports of Pakistan.

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  • Can you be a bit more specific what non-tariff barriers India imposed that significantly curtailed Pakistani exports? It's also worth noting that when it comes to WTO trade disputes, one wrong doesn't undo the other, because e.g. the sums involved may differ. See the Boeing and Airbus cases, which were both litigated. They only settled in the aftermath.
    – Fizz
    Mar 26, 2022 at 6:39
  • @fizz, Can you be a bit more specific what non-tariff barriers India imposed that significantly curtailed Pakistani exports? - check the edit.
    – user366312
    Mar 26, 2022 at 7:00
  • I see. It's worth noting however that the US also limits Mexican truck access. (I don't know if that violates any treaties and Mexico just shuts up or if they've negotiated something.) Actually, I'm not sure they sitll do, but it's been a long dispute on that.
    – Fizz
    Mar 26, 2022 at 7:03
  • @fizz, I don't know if that violates any treaties and Mexico just shuts up or if they've negotiated something. --- I answered that part already. This is a combination of factors, not only one factor.
    – user366312
    Mar 26, 2022 at 7:06
  • I see there were trucking disputes the other way around too hindustantimes.com/india-news/… ; dawn.com/news/1675136
    – Fizz
    Mar 26, 2022 at 7:57

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