Most-favoured-nation Treatment

Most-favoured-nation treatment in Global Commerce Policy

In this regard, most-favoured-nation treatment is: MFN. This is the rule, usually established through a trade agreement, that a country gives each of the trading partners with which it has concluded relevant agreements the best treatment it gives to any of them in a given product. MFN is not in itself an obligation to extend any favourable treatment to another party, nor is it an obligation to negotiate for better treatment. The fundamental point of MFN therefore is equality of treatment of other countries, and in some older treatises it is indeed called “foreign parity”. Despite the apparently static nature of MFN, it has acted as a powerful motor for non-discriminatory trade liberalization. Together with national treatment, MFN makes up the principle of non-discrimination. The MFN rule, in one form or another, can be traced back to the sixteenth century or even earlier. Typical of these older provisions is the formulation contained in the Treaty of Peace and Friendship between Great Britain and Spain of 1713, part of the instruments making up the Treaty of Utrecht. This says that “the subjects of each kingdom. . . shall have the like favour in all things as the subjects of France, or any other foreign nation, the most favour’d, have, possess and enjoy, or at any time hereafter may have, possess or enjoy”. The entries on trade policy are here. An MFN clause was included in the Cobden-Chevalier Treaty between England and France of 1860. This is thought to be the ancestor of its modern application. The entries on trade policy are here. At any rate, the MFN rule was then copied into many other European trade agreements. The entries on trade policy are here. In the years before the First World War, the MFN rule suffered a decline. The war years led to its virtual demise. The entries on trade policy are here. In the third of his fourteen points, President Wilson called in January 1918 for the removal, as far as possible, of all economic barriers and the establishment of an equality of trade conditions among all the nations consenting to the peace and associating themselves for its maintenance. This is deemed by some to have been the equivalent of a call for MFN. The Versailles peace conference did not discuss trade barriers, but in the peace treaty Germany and the other central powers were required to extend unconditional MFN for three years to the trade of the allied powers. The Covenant of the League of Nations only referred to “equitable treatment” of commerce of other League members. This fell well short of an MFN clause. The Geneva World Economic Conference of May 1927 pronounced strongly in favour of the widest possible interpretation of the MFN clause, and it stressed that its use in commercial treaties ought to be normal. The entries on trade policy are here. In 1933, the League of Nations published a 300-word model text of an MFN clause. By that time, economic conditions had been very difficult for several years, and the MFN principle was not able to attract broad support. The Atlantic Charter of 1941 revived it and made it the cornerstone of the post-war multilateral trading system as exemplified by the GATT. The entries on trade policy are here. In the WTO, MFN is the binding general obligation that any concession made to another country must immediately be extended to all other members. The entries on trade policy are here. All WTO members grant each other treatment for trade in goods as favourable as they give to any other country in the application and administration of customs regulations, tariffs and related charges. The entries on trade policy are here. A similar provision applies to trade in services. There are, however, exceptions to the MFN obligation. Here, we mention only some of the important ones. WTO members satisfying the conditions for membership of preferential free-trade areas or customs unions are not obliged to give countries that are not members of the same preferential trading arrangement the same kind of access. Developed countries may maintain GSP schemes which give preferential treatment to developing country imports. The entries on trade policy are here. It is possible to ask for a waiver which provides the legal basis for treating some members more favourably. There is also the possibility of non-application under which an existing WTO member can deny the benefits of the agreement to a newly acceding member. The GATS permits the taking out of a time-bound MFN exemption. The entries on trade policy are here. A concern sometimes voiced about the MFN principle is that it allows free riders to take advantage of trade-liberalizing actions of others without making an equivalent effort. See also conditional most- favoured-nation treatment, Jackson-Vanik amendment, minimum standard of treatment and normal trade relations.[1]

Most-favoured-nation treatmentin the wold Encyclopedia

For an introductory overview on international trade policy, see this entry.

Resources

Notes and References

1. Dictionary of Trade Policy, “Most-favoured-nation treatment” entry (OAS)

See Also