Collapse of SAFTA after MFN Denial to Pak

- Arun Goyal -

Withdrawal of concessions to Pakistan under the South Asian Free Trade Area (SAFTA) agreement and a review of the Indus Water Treaty (IWT) between the two countries will demolish the trade structure built up after decades pf hard work at the negotiating table by the Seven South Asian Countries plus Afghanistan.

The option of dragging Pakistan to the Dispute Settlement Body of the World Trade Organisation (WTO) for not extending trade benefits under the ‘most favoured nation’ (MFN) status may be the best response to Pak sponsored attacks on Indian Security Forces across the LoC in Kashmir. For this India has to give up its stance of not raking up a pre WTO Agreement to raise bilateral issues at multilateral forums. India could then seek retaliation of denying Pak too of MFN.

It could then put a special duty or Non Tariff Barrier on imports from Pakistan under the “Security Exception” allowed in GATT 1994. Thus the WTO approval will legitimize Indian trade action.

India may not be keen on a military war against Pakistan in retaliation for the September 18 attack, the consensus within the government is to wage an “economic war” instead.

India has a huge trade surplus with Pak, thus a trade war between the two will hurt India more than Pak. Two-way trade between India and Pakistan stood at $2.61 billion in 2015-16, up 11 per cent from $2.35 billion in 2014-15.

Any action within SAFTA - which has Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka as member-states - has to be consensus-based.

India cannot easily withdraw the MFN status it had given Pakistan in 1996.

Pakistan, in turn, may cite ‘Security Exceptions’ in Article XXI of GATT (General Agreement on Tariffs and Trade) to justify denial of MFN to India on grounds of security.

Last year, when External Affairs Minister Sushma Swaraj was in Pakistan, both sides decided to restart the Comprehensive Bilateral Dialogue, under which India offered to give preferential trade access to Pakistan under SAFTA provided Pakistan extends MFN benefits to India. (India has given duty concessions to All SAFTA Members other than Pak).