CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

economics Project ON:MOST FAVOURED NATION IN WORLD TRADE ORGANISATION

Submitted To: Mr P. C. Verma (Faculty for economics) Submitted By: Shatakshi Sharma 2nd yr Roll no 609
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ACKNOWLEDGEMENT
The present project on the MOST FAVOURED NATION IN WTO has been able to get its final shape with the support and help of people from various quarters. My sincere thanks go to all the members without whom the study could not have come to its present state. I am proud to acknowledge gratitude to the individuals during my study and without whom the study may not be completed. I have taken this opportunity to thank those who genuinely helped me.

With immense pleasure, I express my deepest sense of gratitude to Mrs. Shivani Mohan, Faculty for Economics, Chanakya National Law University for helping me in my project. I am also thankful to the whole Chanakya National Law University family that provided me all the material I required for the project.

I have made every effort to acknowledge credits, but I apologies in advance for any omission that may have inadvertently taken place. I would like to thank my parents and especially my elder sister without the blessing and co-operation of which the completion of the project would not have been possible..

SHATAKSHI SHARMA 609

RESEARCH METHODOLOGY
AIMS AND OBJECTIVES: The aim of the project is to present a detailed study of governments policy on water resources and how this problem should be dealt with

Scope and Limitations:

Though this is an immense project and pages can be written over the topic but because of certain restrictions and limitations I was not able to deal with the topic in great detail.

Sources of Data:
The following secondary sources of data have been used in the projectArticles Books

Method of Writing:
The method of writing followed in the course of this research paper is primarily analytical.

Mode of Citation:
The researcher has followed a uniform mode of citation throughout the course of this research paper.

TABLE OFCONTENTS

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1. ACknowlEDGEmEnt..2 2. REsEARCH mEtHoDoloGy..3 3. tABlE oF ContEnts...4 4. Introduction..5-7 5. w0RlD tRADE oRGAnIsAtIon..8-10 6. MOST FAVOURED NATION..11-13 7. most FAvouRED nAtIon In wto.14-19 8. EConomIC ImplICAtIons..20-21 9. ConClusIon22 10. EnD notE23 BIBlIoGRApHy.24

Introduction
In examining this matter we will take into consideration four things: What is MFN, intimate relation between trade and diplomacy and the limits upto which a government can take the plea that it has mandate of the people to do what it likes during its term of the mandate and fourthly the history of trade with India itself. MFN {Most Favoured Nation) is a term used in trade agreements to indicate that practically the country granted this status will pay as low custom duties as possible, there will be no barrier on their imports and exports , no embargos etc other than that which the closest friend factually- enjoys. The word friend is not used in trade agreements. Trade in fact not in theory is part of diplomacy, it is used as carrots and stick in favouring or punishing countries according to relations desired. The history of international trade is full of the part it plays in modulating relations with target countries. Trade is an adjunct of diplomacy. Western nations have been the most illustrious examples of it, particularly in their dealings with China and trade concessions were obtained, shall we say snatched by bombarding . Never in modern history trade has been devoid of diplomacy. But in history these concessions had been granted either by gun boat diplomacy as was done by Western countries in China in the 19th Century like by the two Opium wars and in Japan when to start with Commodore Perry bombarded Yokohama in 1854 to force open Japans gates for trade and allowing Christian missionaries to preach Christianity - or because the relations between the countries are so cordial as was done in Europe In most recent days it all started with the Treaty of Rome, European Economic unions, then division of Europe into two unions, then finally reaching European Union. Experts will recall that for long years UK had its reservations on joining these European groupings. There was controversy in UK over the fate of Pound Sterling in merging it into Euro-dollar, and joining such a grouping or opening the gates wide will have on British economy and effects on employment level. EU did not come into existence just by some summit meeting of European leaders over night. These vital matters are not decided in jiffy. It took Europe , am I right three decades or more to come to EU- which our writers some times wish happens in SAARC also, as if it is a matter of just uttering some amicable words and the South Asian Union comes into existence. Trade is an adjunct of diplomacy in modern age. For example , Turkeys admission into EU. Turkey can become NATO member but not where
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there is the cake of being part of the EU. Or Pakistans trade with Europe or US etc. Over all relations are connected with granting MFN status to India, and this does not mean one is looking at the issue with malicious eye. It is a realistic examination that is needed in deciding grant of MFN to India, that is in granting this privilege to India there is no impediment in opening Pakistans the gates so wide The same has been the case with Pakistans trade. As regards the history of trade with India , I will begin with 1949 war on devaluation. It would look like a fairy tales in the modern days that in 1949 India devalued its Rupee but Pakistan did not, which made Pakistan Rupee much higher compared to Indias Rupee and since we are heavily depended on imports from India it favoured us, making imports cheaper. Prof G W Choudhry has given greater details of this in his book published in 1969 . May be Pak Rupee went up by the percentage India devalued. That is by 33 % . My I join the lament on the present value of Pak currency It is Pak Rs 2.20 equal to One Indian Rupee. India cut off all our trade and we did not know what to do. We went round all over the world to get coal and Iron from Poland and got European markets for our exports etc. Just giving the readers an idea what happened in this India-Pak devaluation war. Then we adopted the policy of not depending on India for trade, There are strategic maerials involved also I believe in Titos aphorism Hope for the peace as if it would last for ever and prepare for war as if it would out tomorrow . Trade is also connected with strategic matters. For example there was an item of importing electricity from India. Digressing from the topic, I remember in the 90s we were surplus in electricity and were even hoping or wishing to export electricity to India and to neighbouring countries. No we cannot link our imports with India in strategic industries. Linking rdae with India would have to remain on the assumption that we are not One unit, repeat Not One Unit. We cannot for the sake of our Western masters go on the road of one unit but theoretically two states . EU is all Christian and that is one factor that makes them having some commonality of values. South Asia is not. Diversification of trade links for Pakistan is necessary.- from the point of view of economic independence, for the sake of not becoming sitting duck in defence. But my assumption is that Pakistan is and Pakistan must remain an independent country. This is why last Prime Ministers idea of privatization of Karachi Steel Mill to Indian tycoon Mittal was opposed by my feeble voice, as in this case. Let there not be any misunderstanding that there are only two extremeeither loving embrace with India which MFN is or hostility etc. Only a bankrupt diplomat would
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look or wish relations with India in this perspective.. Any diplomat worth the name would like a balanced and mature approach in relations with India but not a sudden flight of imagination. For example, with MFN what will happen to the value of Rupee, what will happen to our uncompetitive industries which are necessary in the perspective that we must remain an independent country and must develop economically. The present third rate economy is our down fall and not our zenith that we become dauntless in opening our doors for India. This is too sudden diplomatic move. I am inclined to read in it intention to break us from our good friend China, we have agreed to Indias permanent membership in Security Council , and accept Indias hegemony as a good realist . This is why the sudden shift towards India.. We used to have ambitions to compete with India and acquired the N-safety belt for that purpose. Example of Japan was before us territorially smaller country than Pakistan, poorer in natural resources , does not grow food for one month for its consumption became Third major Economic power. This was a major turn in Pakistans history.. The idea that Government has been given mandate to do what it likes is not true. It does not mean that people outside the Government have been deprived of the right to question the Government They are merely representatives and not masters and it would not be right to tell the public to shut up because we have been given mandate.

Granting MFN to India is too big a jump. It must be submitted to the National Assembly for approval. Under international law, Agreements are not treaties. Treaties are sacrosanct not agreements.

World trade organisation

The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and

Trade (GATT), which commenced in 1948. The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments.[4][5] Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (19861994). The organization is currently endeavoring to persist with a trade negotiation called the Doha Development Agenda (or Doha Round), which was launched in 2001 to enhance equitable participation of poorer countries which represent a majority of the world's population. However, the negotiation has been dogged by "disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports. At this time, the future of the Doha Round is uncertain."[6] The WTO has 153 members,[7] representing more than 97% of the world's population,[8] and 30 observers, most seeking membership. The WTO is governed by a ministerial conference, meeting every two years; a general council, which implements the conference's policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the ministerial conference. The WTO's headquarters is at the Centre William

Rappard, Geneva, Switzerland.

Mission of world trade organization

The WTO provides a forum for negotiating agreements aimed at reducing obstacles to international trade and ensuring a level playing field for all, thus contributing to economic growth and development. The WTO also provides a legal and institutional framework for the implementation and monitoring of these agreements, as well as for settling disputes arising from their interpretation and application. The current body of trade agreements comprising the WTO consists of 16 different multilateral agreements (to which all WTO members are parties) and two different plurilateral agreements (to which only some WTO members are parties). Over the past 60 years, the WTO, which was established in 1995, and its predecessor organization the GATT have helped to create a strong and prosperous international trading system, thereby contributing to unprecedented global economic growth. The WTO currently has 153 members, of which 117 are developing countries or separate customs territories. WTO activities are supported by a Secretariat of some 700 staff, led by the WTO Director-General. The Secretariat is located in Geneva, Switzerland, and has an annual budget of approximately CHF 200 million ($180 million, 130 million). The three official languages of the WTO are English, French and Spanish. Decisions in the WTO are generally taken by consensus of the entire membership. The highest institutional body is the Ministerial Conference, which meets roughly every two years. A General Council conducts the organization's business in the intervals between Ministerial Conferences. Both of these bodies comprise all members. Specialised subsidiary bodies (Councils, Committees, Sub-committees), also comprising all members, administer and monitor the implementation by members of the various WTO agreements. More specifically, the WTO's main activities are: 1. negotiating the reduction or elimination of obstacles to trade (import tariffs, other barriers to trade) and agreeing on rules governing the conduct of international trade (e.g. antidumping, subsidies, product standards, etc.) 2. administering and monitoring the application of the WTO's agreed rules for trade in goods, trade in services, and trade-related intellectual property rights monitoring and
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reviewing the trade policies of our members, as well as ensuring transparency of regional and bilateral trade agreementssettling disputes among our members regarding the interpretation and application of the agreements building capacity of developing country government officials in international trade matters assisting the process of accession of some 30 countries who are not yet members of the organization conducting economic research and collecting and disseminating trade data in support of the WTO's other main activities explaining to and educating the public about the WTO, its mission and its activities. The WTO's founding and guiding principles remain the pursuit of open borders, the guarantee of most-favoured-nation principle and non-discriminatory treatment by and among members, and a commitment to transparency in the conduct of its activities. The opening of national markets to international trade, with justifiable exceptions or with adequate flexibilities, will encourage and contribute to sustainable development, raise people's welfare, reduce poverty, and foster peace and stability. At the same time, such market opening must be accompanied by sound domestic and international policies that contribute to economic growth and development according to each member's needs and aspirations.

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MOST FAVOURED NATION

In international economic relations and international politics, most favoured nation (MFN) is a status or level of treatment accorded by one state to another in international trade. The term means the country which is the recipient of this treatment must, nominally, receive equal trade advantages as the "most favoured nation" by the country granting such treatment. (Trade advantages include lowtariffs or high import quotas.) In effect, a country that has been accorded MFN status may not be treated less advantageously than any other country with MFN status by the promising country. There is a debate in legal circles whether MFN clauses in BIT's include only substantive rules or also procedural protections. The members of the World Trade Organization (WTO) agree to accord MFN status to each other. Exceptions allow for preferential treatment of developing countries, regional free trade areas andcustoms unions. Together with the principle of national treatment, MFN is one of the cornerstones of WTO trade law. Most favoured nation relationships extend reciprocal bilateral relationships following both GATT and WTO norms of reciprocity and non-discrimination. In bilateral reciprocal relationships a particular privilege granted by one party only extends to other parties who reciprocate that privilege, while in a multilateral reciprocal relationship the same privilege would be extended to the group that negotiated a particular privilege. The non-

discriminatory component of the GATT/WTO applies a reciprocally negotiated privilege to all members of the GATT/WTO without respect to their status in negotiating the privilege.

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HISTORY
In the early days of international trade, most favoured nation status was usually used on a dualparty, state-to-state basis. A nation could enter into a most favoured nation treaty with another nation. With the Jay Treaty in 1794, the U.S. granted most favoured nation trading status to Britain. Generally bilateral, in the late 19th and early 20th century unilateral most favoured nation clauses were imposed on Asian nations by the more powerful Western countries (see Open Door Policy). One particular example of "most favoured nation" status is the Treaty of Nanking as part of the series of unequal treaties. It was implemented in the aftermath of the First Opium War between Great Britain and Chinese Qing Dynasty involving the Hong Kong islands. After World War II, tariff and trade agreements were negotiated simultaneously by all interested parties through the General Agreement on Tariffs and Trade (GATT), which ultimately resulted in the World Trade Organization in 1994. The World Trade Organization requires members to grant one another most favoured nation status. A most favoured nation clause is also included in the majority of the numerous bilateral investment treaties concluded between capital exporting and capital importing countries after the Second World War.

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BENEFITS OF MOST FAVOURED NATION

Trade experts consider MFN clauses to have the following benefits:

A country that grants MFN on imports will have its imports provided by the most efficient supplier. This may not be the case if tariffs differ by country.

MFN allows smaller countries, in particular, to participate in the advantages that larger countries often grant to each other, whereas on their own, smaller countries would often not be powerful enough to negotiate such advantages by themselves.

Granting MFN has domestic benefits: having one set of tariffs for all countries simplifies the rules and makes them more transparent. It also lessens the frustrating problem of having to establishrules of origin to determine which country a product (that may contain parts from all over the world) must be attributed to for customs purposes.

MFN restrains domestic special interests from obtaining protectionist measures. For example, butter producers in country A may not be able to lobby for high tariffs on butter to prevent cheap imports from developing country B, because, as the higher tariffs would apply to every country, the interests of A's principal ally C might get impaired.

As MFN clauses promote non-discrimination among countries, they also tend to promote the objective of free trade in general.

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MOST FAVOURED NATION IN WORLD TRADE ORGANISATION

(i)The Background of Rules: Most-Favoured-Nation Treatment (MFN) "Most-Favoured-Nation treatment" or "MFN," which requires Members to accord the most favourable tariff and regulatory treatment given to the product of any one Member at the time of import or export of "like products" of all other Members, is one of the bedrock principles of the WTO. Under the Most-Favoured-Nation rule, should WTO Member state A agree in negotiations with state B, which needs not be a WTO Member, to reduce the tariff on the same product X to five percent, this same "tariff rate" must also apply to all other WTO Members as well. In other words, if a country gives favourable treatment to one country regarding a particular issue, it must handle all Members equally regarding the same issue. The idea of Most-Favoured-Nation treatment in and of itself has a long history. Prior to the GATT, an MFN clause was often included in bilateral trade agreements, and as such it contributed greatly to the liberalization of trade. However, in the 1930s, several measures that limited the functioning of the MostFavoured-Nation principle were taken. It is said that these measures led to the division of the world economy into trade blocs. Having learned from this mistake, after World War II, the unconditional Most-Favoured-Nation clause was then included in the GATT, on a multilateral basis, and has contributed to the stability of trade around the world.

Against this background, the MFN principle in particular must be observed as a fundamental principle for sustaining the multilateral free trade system. Regional integration and related exceptions need to be carefully administered so as not to undermine the MFN principle as a fundamental principle of the WTO. The World Trade Organization requires members to grant one another most favoured nation status. A most favoured nation clause is also included in the majority of the numerous bilateral investment treaties concluded between capital exporting and capital importing countries after the Second World War.

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(ii) Legal Framework GATT Article I:1 GATT Article I:1 provides for WTO Members to accord Most-Favoured-Nation treatment to like products of other WTO Members regarding tariffs, regulations on exports and imports, internal taxes and charges, and internal regulations. In other words, "like" products from all WTO Members must be given the same treatment as the most advantageous treatment accorded the products of any state. Should an importing country flagrantly accord differential treatment to "like products" of the exporting country, i.e. by setting different tariff rates, it would be clearly a violation of GATT Article I:1. However, Article I:1 violations can also occur even when there is no ostensible discrimination against the product of a MostFavoured-Nation, such as when an importing country accords differential treatment among products that are considered to be "like products," which ultimately results in the de facto discrimination against products of specific contracting parties. For instance, a country may apply a different tariff rate to a particular variety of raw coffee bean, but if that variety and other varieties of coffee beans were considered to be "like products," using criteria such as consumer tastes and end-use, the differential tariff may have an effect on imports from only specific countries. This may be considered in violation of the MFN rule. In contrast, the concept of like products was strictly interpreted in Japan's SPF (spruce, pine, and fir) case. The panel in that case recognized that each WTO Member might exercise considerable discretion as to tariff classifications and that the legality of such classifications would be established to the extent that it did not discriminate against the same products from different WTO Member. Non-Discriminatory Administration of Quantitative Restrictions GATT Article XIII stipulates that quantitative restrictions or tariff quotas on any product must be administered in a non-discriminatory fashion regarding like products, and that in administering import restrictions and tariff quotas, WTO Members shall aim to allocate shares close to that which might be expected in their absence. Article XIII provides for mostfavoured-nation treatment in the administration of quantitative restrictions, and supplements

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the disciplines under Article I. States Trading Enterprises "States Trading Enterprises" means state enterprises established or maintained by a WTO Member or private enterprises granted exclusive or special privileges by WTO Members, which make purchases or sales involving either imports or exports. By making use of their monopolistic status, such enterprises could operate against international trade through discrimination on the part of importing country and quantitative restrictions. GATT Article XXVII obliges WTO Members to act in accordance with the rule of non-discrimination, including the MFN (iii) Exceptions to the Most-Favoured-Nation Rule The GATT provides for certain exceptions to the Most-Favoured-Nation rule described above. (a) Regional Integration (GATT Article XXIV) Regional integration liberalizes trade among countries within the region, while allowing trade barriers with countries outside the region. Regional integration therefore may lead to results that are contrary to the Most-Favoured-Nation principle because countries inside and outside the region are treated differently. This may have a negative effect on countries outside the region, and thus lead to results contrary to the liberalization of trade. Therefore, GATT Article XXIV provides that regional integration may be allowed as an exception to the Most-Favoured-Nation rule only if the following conditions are met. First, tariffs and other barriers to trade must be eliminated with respect to substantially all trade within the region. Second, the tariffs and other barriers to trade applied to outside countries must not be higher or more restrictive than they were prior to establishment of regional integration. Regional integration has a vast impact on the world economy today and is the subject of frequent debate in a variety of forums, including the WTO Committee on Regional Trade Agreements. (For details, see Chapter 15 on Regional Integration.)

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(b) Generalized System of Preferences The Generalized System of Preferences or "GSP" is a system that grants products originating in developing countries lower tariff rates than those normally enjoyed under Most-Favoured-Nation status as a special measure granted to developing countries in order to increase their export earnings and promote their development. The GSP is defined in the Decision on "Generalized System of Preferences" of June 1971, and is a measure taken based on the Decision on "Differential and More Favourable Treatment, Reciprocity, and Fuller Participation of Developing Countries" or the "Enabling Clause." The GSP has the following characteristics: First, preferential tariffs may be applied not only to countries with special historical and political relationships (i.e. the British Commonwealth), but to developing countries more generally (thus the system is described as "generalized"). Second, the beneficiaries are limited to developing countries. Third, it is a benefit unilaterally granted by developed countries to developing countries. (c) Non-Application of Multilateral Trade Agreements between Particular Member State The Marrakesh Agreement Establishing the World Trade Organization (the "WTO Agreement") provides that "[t]his Agreement and the Multilateral Trade Agreement in Annexes 1 and 2 shall not apply as between any Member and any other Member," when either of the following conditions are met: (a) at the time the WTO went into force, Article XXXV of GATT 1947 had been invoked earlier and was effective as between original Members of the WTO which were contracting parties to GATT 1947 or; (b) between a Member and another Member which has acceded under Article XII only if the Member not consenting to the application has so notified the Ministerial Conference before the approval of the agreement on the terms of accession by the Ministerial Conference. In the case of non-application, benefits enjoyed by other Members are not provided to the country of non-application, which leads to results that are contrary to the most-favourednation principle. These Article XIII provisions were created to deal with problems arising from accessions. Ideally, the most-favoured-nation rule would be applied stringently so

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that when country B accedes to the Agreement, it is required to confer most-favourednation status on all other Members, and they, in turn, are required to confer mostfavoured-nation status on country B. However, country A, which is already a Member of the WTO, may have reasons for not wanting to confer the rights and obligations of the WTO on new Member B. The WTO only requires the consent of two-thirds of the existing membership for accession, so it is conceivable that country A might, against its will, be forced to give most-favoured-nation status to country B. WTO Article XIII is a way to respect country A's wishes by preventing a WTO relationship from taking effect between countries A and B. On the other hand, WTO Article XIII provides a way for the accession of country B, even if more than a third of the membership, like country A, has reasons for not wanting a WTO relationship with country B (in which case they will object to the accession itself) by allowing for non-application. In January 1995, the United States notified the General Council that it would not apply the Agreement and the Multilateral Trade Agreements in Annexes 1 and 2 to Romania, yet, in February 1997, the United States withdrew its invocation. (d) Other Exceptions Other exceptions peculiar to the Most-Favoured-Nation principle include Article XXIV:3 regarding frontier traffic with adjacent countries, and Article I:2 regarding historical preferences which were in force at the signing of the GATT, such as the British Commonwealth. General exceptions to the GATT that may be applied to the Most-Favoured-Nation principle include Article XX regarding General Exceptions for measures necessary to protect public morals, life and health, etc., and Article XXI regarding Security Exceptions. It is also possible to obtain a waiver to constitute an exception to the MostFavoured-Nation principle. Under WTO Article IX:3, countries may, with the agreement of other contracting parties, waive their obligations under the agreement. New waivers, however, can only be obtained for exceptional circumstances, and require the consent of three-quarters of the contracting parties It is stipulated that the exceptional circumstances, the terms and conditions governing the application of the waiver, and the date on which the waiver will be terminated shall be clearly stated, and that waivers are

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subject to annual review

(iv) Most-Favoured-Nation Provisions Outside of GATT 1994 The idea of most-favoured-nation treatment has been extended to the areas of trade in services and intellectual property by the WTO Agreement, although with certain exemptions. Article II of the General Agreement on Trade in Services (GATS) provides for mostfavoured-nation treatment for services and service providers; Article 4 of the Agreement on Trade-Related Aspects of Intellectual Property Rights does the same for the protection of intellectual property rights. The GATS allows for exceptions where Members may waive their obligation to provide most-favoured-nation treatment for specific measures in specific fields by listing the measure in the Annex on Article II Exemptions. The TRIPS Agreement also provides for exemptions regarding measures based on existing treaties in the area of intellectual property.

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Economic Implications
The most-favoured-nation rule has several positive economic implications, which are discussed below. Increased Efficiency in the World Economy First, most-favoured-nation treatment makes it possible for countries to import from the most efficient supplier, in accordance with the principle of comparative advantage. For example, if country A does not produce product X, and if country B can supply product X at a lower price than country C, country A can increase its economic efficiency by importing it from country B. If, however, country A applies higher tariff rates to product Xs from country B than to product Xs from country C, country A may end up importing product Xs from country C, even though country C is not as efficient a supplier. This distorts trade and, as a result, reduces the welfare of country A and the economic efficiency of the entire world. If, however, the Most-Favoured-Nation principle is applied between the three countries, then country A will apply its tariffs equally to all exporting countries and will therefore necessarily import product X from country B because it is cheaper to do so. The most efficient result is thus attained. Stabilization of the Free Trading System Second, the most-favoured-nation rule requires that favourable treatment granted to one country be immediately and unconditionally granted to all other countries, while trade restrictions must also be applied equally to all. This increases the risk of the introduction of trade restrictions becoming a political issue, raises the costs of doing so and therefore tends to support the liberalized status quo. By stabilizing the free trade system in this manner MFN increases predictability and therefore increases trade and investment.

Reduction of the Cost of Maintaining the Free Trade System Third, MFN reduces the cost of maintaining the free trade system. The equal treatment

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demanded by the Most-Favoured-Nation principle tends to act as a force for unifying treatment at the most advantageous level (which in trade means the most liberal level). The establishment and maintenance of the most-favoured-nation rule enables WTO Members to reduce their monitoring and negotiation costs - the cost of watching and comparing treatment received with that given to third countries - and of negotiating remedies to disadvantageous treatment. In short, the most-favoured-nation rule has the effect of reducing the cost of maintaining the free trade system. Finally, as long as the most-favoured-nation rule is honoured, imports from all WTO Members are treated equally, which reduces the cost of determining an import's origin and therefore improves economic efficiency. Thus the most-favoured-nation rule is of fundamental importance in improving economic efficiency. However, we must also note that the most-favoured-nation rule is often misused. The arguments run that bilateral negotiations not under the auspices of the WTO can be justified by the most-favoured-nation principle, because any trade benefits that result from these negotiations will be applied equally to all other WTO members, even though they may be excluded from the negotiations. Bilateral negotiations are thus justified as a more timesaving and effective means to remove "unfair" trade measures. However, this does not take into account the fact that because bilateral negotiations lack transparency, there is a possibility that MFN treatment is not extended to countries not in the negotiation, and the fact that bilateral negotiations tend to reflect the power relationship between the two countries. Even if the results of the negotiations are extended through the MFN principle, it must be noted that the end "result" of improved treatment in trade does not necessarily justify the means, that is unfairness of procedure in bilateral negotiations. Continual vigilance is required to ensure that the most-favoured-nation rule is not abused in a resultoriented manner to undermine the basic importance of the dispute settlement process in the WTO.

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Conclusion
Pakistan's decision to give India Most Favoured Nation (MFN) status is a big leap forward in bilateral relations. Paradoxically, the term of art connotes the opposite of what it means in common speech under MFN a country agrees to treat another country equally with all the other countries with which it trades, as part of the agreement in the World Trade Organisation on non-discriminatory trade practices. As India and Pakistan are WTO members, this should have happened as a matter of course, but their uniquely poor relations ensured that even the routine was difficult. India accorded MFN to Pakistan in 1996 but Islamabad, which had linked improvement of trade ties to the resolution of the Kashmir issue, was propelled by the logic of its own position to withhold reciprocity. The change of heart now might have been prompted by a realisation in Pakistan that it can no longer afford to isolate itself from India's economic growth. As a next step, Pakistan would have to replace its positive list for trade with India with a negative list. New Delhi too has agreed to address the Pakistani grievance of Indian non-tariff barriers against its exports. But MFN status also means that Indian goods must compete in Pakistani markets with products from China or any other country, and vice versa. Both countries must now facilitate trade with each other through all possible routes, including the contentious land crossing at Wagah. They must also operationalise their part of the South Asian Free Trade Area agreement. Prospects for improved India-Pakistan relations seem better now than at any time in the past three years. There have been some positive political developments as well: India recently backed Pakistan's entry into Sthe United Nations Security Council; Pakistan supported another term for India's Kamlesh Sharma as the Commonwealth Secretary-General. A potential spat over the crossing of an Indian helicopter into Pakistani airspace was quickly averted the Pakistani military sent the helicopter back after properly forcing it to land and questioning the Indian Army officers in it. There are still influential hawkish sections in both countries that stand in the way of rapprochement. The Pakistan government has drawn much criticism internally for the MFN overture to India. It can only be hoped that the forward momentum will be sustained.

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End note

1. ^ General Information on Recruitment in the World Trade Organization, World Trade Organization 2. ^ "WTO Secretariat budget for 2008". World Trade Organization. Retrieved 200808-25. 3. ^ Overview of the WTO Secretariat All WTO staff are based in Geneva. 4. ^ Understanding the WTO what is the World Trade Organization?, World Trade Organization 5. ^ Malanczuk, P. (1999). "World Trade Organization".Encyclopaedia Britannica. 442. 6. ^ European Commission The Doha Round 7. ^ Members and Observers WTO official site 8. ^ Hart, Jeffrey A (2010). The politics of international economic relations (7th ed. ed.). Boston, MA: Wadsworth Cengage Learning. ISBN 0534602746.

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BIBLIOGRAPHY
http://www.meti.go.jp/english/report/data/gCT9901e.html http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm http://www.terry.uga.edu/~eornelas/Econ4040/WTO-basics.pdf\ http://www.thehindu.com/opinion/editorial/article2598710.ece http://pakobserver.net/detailnews.asp?id=124840

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