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India-Pakistan trade freeze hits thousands: report

Topics Covered: India and its neighbourhood- relations.

India-Pakistan trade freeze hits thousands: report

What to study?

For Prelims: Overview of border areas, meaning of MFN status.

For Mains: Impact of trade shutdown and ways to address these issues.

Context: The Bureau of Research on Industry and Economic Fundamentals (BRIEF) has released a report highlighting the impact of trade shutdown between India and Pakistan on people across borders.

The report is called “Unilateral Decisions, Bilateral Losses”.

What has happened?

Following the Pulwama attacks, trade between India and Pakistan across the Wagah-Attari border and the Line of Control (LoC) Salamabad-Chakhan da Bagh routes was closed in 2019.

MFN (most favoured nation) status to Pakistan was also cancelled.

Pakistan has also imposed few counter- measures, including an airspace ban and suspension of trade relations.

Impacts of these decisions:

  1. The decisions on trade were meant to be a tough message for Pakistan and would impact Pakistan’s economy even more than India’s. Even though ties have been much worse in the past like after the Parliament attack, trade had never been touched.
  2. Now, at least 9,354 families, roughly 50,000 people, in Punjab and about 900 families in Kashmir have been directly impacted.
  3. Both countries have lost billions of dollars and hundreds of job days.
  4. These measures that led to a 200% duty increase on imports from Pakistan at Punjab saw even the relatively meagre bilateral trade of $2.56 billion in 2018-2019 dropping to $547.22 million (April-August 2019) – imports dropping from about $500 million to just $11.45 million.
  5. Similarly, the closure of LoC trading points in Jammu and Kashmir has put small trade, handicrafts sellers, truckers, labourers, and hotel owners near the LoC in Baramulla and Poonch out of business.

What next?

  1. Cross-LoC trade before the suspension order in April 2019 was about $95 million for the year. In the suspension order, the Ministry of Home Affairs (MHA) said trade would be resumed after “putting into place a stricter regulatory regime” in order to block misuse of the route for “weapons, narcotics and currency,” but nine months later, there are no signs of resumption of LoC trade.
  2. Therefore, the centre now has to take up this matter seriously and give equal attention on development of livelihoods of those affected. Besides, national security should not be compromised.
  3. The governments should also consider compensating them for the losses and finding alternative trading markets internally so that those affected are not put out of business permanently.

What is Most Favoured Nation status?

A treatment accorded to a trade partner to ensure non-discriminatory trade between two countries vis-a-vis other trade partners.

It is the first clause in the General Agreement on Tariffs and Trade (GATT). Under WTO rules, a member country cannot discriminate between its trade partners. If a special status is granted to a trade partner, it must be extended to all members of the WTO.

MFN at the same time allows some exemptions as well:

  • Right to engage in Free Trade Agreements: This means members can participate in regional trade agreements or free trade agreements where there is discrimination between member countries and non-member countries.
  • Members can give developing countries special and differential treatment like greater market access. This special concession are in different forms like reduced tariff rates from developing country imports, concessions that allows developing countries to give subsidies to their production sectors etc.

Sources: The Hindu.