A day after withdrawal of Most Favoured Nation (MFN) status to Pakistan following the Pulwama terror attack, India on Saturday increased the customs duty on all goods imported from the neighbouring country to 200 per cent with immediate effect.
Finance Minister Arun Jaitley in a tweet said, “India has withdrawn MFN (most favoured nation) status to Pakistan after the Pulwama incident. Upon withdrawal, basic customs duty on all goods exported from Pakistan to India has been raised to 200 per cent with immediate effect.”
The hike in customs duty would be applicable on all goods including fresh fruits, cement, petroleum products and mineral ore and will raise the price of imports from Pakistan in India.
The two main items imported from Pakistan are fruits and cement, on which the current customs duty is 30-50 per cent and 7.5 per cent, respectively.
In April-November, India’s imports from Pakistan stood at about $381 million compared with $488.5 million in FY18 with fruit and nuts, gypsum, sulphur, mineral oils and cement as the major items of import. Indias exports to Pakistan in the first eight months of the fiscal amounted to $1.4 billion compared with $1.9 billion in FY18.
India’s trade with Pakistan, however, has been consistently under $2.5 billion on an annual basis. In FY18, India-Pakistan trade was a mere $2.40 billion or about 0.4 per cent of India’s overall trade. In fact, India continues to maintain a substantial trade surplus. Pakistans exports to India have been about a fourth of what it imports from India, the MFN concessions notwithstanding. India mainly exports cotton, dyes,
chemicals, vegetables and iron and steel while it imports fruits, cement, spices and leather.
After the Uri terror attack in 2016, India had reviewed Pakistans MFN status but decided not to withdraw it.
Article 1 of General Agreement on Tariffs and Trade (GATT), 1994, requires every WTO member country to accord MFN status (or preferential trade terms with respect to tariffs and trade barriers) to all other member countries. Accordingly, India accorded MFN status to all WTO member countries, including Pakistan, from the date of entry into force of the so called Marrakesh Agreement, establishing the WTO.
However, Pakistan is yet to transition fully to MFN status for India and it maintains a Negative List of 1209 products that are not allowed to be imported from India. Also, Pakistan permits only 138 products to be imported from India through the Wagah/Attari border land route. Despite these restrictions, India continues to maintain a substantial trade surplus with Pakistan even though broader trade numbers have largely been static.
Trade between the neighbours jumped nearly three-and-a-half times between 2000-01 and 2005-06 (from $251 million to $869 million per annum) but progress was slower in the decade that followed with volumes rising a little over three times in that period.