The most favored nation clause and its politics: In relation to India and Pakistan

The partition of 1947 not only had political and social repercussions; it also significantly affected the economic relationship between both the countries. Trade between both these counties had come to a standstill. Thereafter, trade between the two nations has always been influenced by political factors. India and Pakistan are both members of WTO (World Trade Organization) and are signatories to GATT (General Agreement on Trade and Tariffs). Most Favored Nation (MFN) Principle is the central pillar of GATT is embedded under Article I of GATT. This principle is based on the age old concept of reciprocity and non- discrimination. In 1996 India granted MFN status to Pakistan thereby putting Pakistan on the same pedestal as the other countries with respect to trade quotient. But Pakistan has still not reciprocated this gesture. What are the various political factors playing a crucial role with respect to granting of the MFN status? What are the arguments put forth for not granting such status? What are the advantages that can be gained by granting MFN status? Can both these countries separate their political considerations and economic issues to fulfill their obligations under GATT? These are some of the key issues discussed in the paper.