India allowed to construct Hydroelectric Power Plants under IWT

The World Bank has said that India is allowed to construct hydroelectric power plants on the Jhelum and Chenab Rivers after secretary-level discussions between India and Pakistan on the technical issues over the Indus Waters Treaty concluded recently in a spirit of goodwill and cooperation.

What the disagreement is about:

India and Pakistan disagree about the construction of the Kishenganga (330 megawatts) and Ratle (850 megawatts) hydroelectric power plants being built by India (the World Bank is not financing either project). The two countries disagree over whether the technical design features of the two hydroelectric plants contravene the Treaty. The plants are on respectively a tributary of the Jhelum and the Chenab Rivers. The Treaty designates these two rivers as well as the Indus as the “Western Rivers” to which Pakistan has an unrestricted use. Among other uses, India is permitted to construct hydroelectric power facilities on these rivers subject to constraints specified in Annexures to the Treaty.

What is the Indus Water Treaty (IWT)?

The six rivers of the Indus basin originate in Tibet and flow across the Himalayan ranges to end in the Arabian sea south of Karachi. The components of the treaty were fairly simple. The three western rivers (Jhelum, Chenab and Indus) were allocated to Pakistan while India was given control over the three eastern rivers (Ravi, Beas and Sutlej). While India could use the western rivers for consumption purpose, restrictions were placed on the building of storage systems. The treaty states that aside from certain specific cases, no storage and irrigation systems can be built by India on the western rivers.

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Pakistan yet to transition fully to MFN status for India

Pakistan is yet to award the most favoured nation (MFN) status to India and it maintains a negative list of 1,209 items which are not permitted to be imported from India. The neighbouring country allows only 137 products to be exported from India through Wagah/Attari border land route.

As per a World Trade Organisation (WTO) rule, every member of WTO requires to accord this status to other member countries. India has already granted this status to all WTO members including Pakistan.

Most Favoured Nation is a treatment accorded to a trade partner to ensure non-discriminatory trade between two countries vis-a-vis other trade partners. The importance of MFN is shown in the fact that 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 allows some exemptions as well:

One such exemption is the 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.

Another exemption is that members can give developing countries special and differential treatment like greater market access. This special concession is in different forms like reduced tariff rates from developing country imports, concessions that allow developing countries to give subsidies to their production sectors etc.

All these exceptions are subjected to strict conditions.

In literal explanation, MFN doesn’t mean preferential treatment. Instead, it means a non-discriminatory trade that ensures that the country receiving MFN status will not be in a disadvantageous situation compared to the granter’s other trade partners. When a country receives MFN status, it is expected to raise trade barriers and decrease tariffs. It is also expected to open up the market to trade in more commodities and the free flow of goods.
MFN essentially guarantees the most favourable trade conditions between two countries. These terms include the lowest possible trade tariffs, the least possible trade barriers and very crucial to trade relations– highest import quotas. The disclaimer only requires equal treatment to all Most Favoured Nations.

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