Most-Favoured-Nation Treatment

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In international treaties, a Most-Favoured-Nation Treatment (MFN) clause contains the obligation, on behalf of each country that is a party to the treaty, if it grants an advantage of a certain kind to any country, to also grant that advantage to every other country that is a party to the treaty. Simply put, a Contracting Party may not treat another Contracting Party worse than any other country.

Together with national treatment obligations, MFN clauses are essential features of many trade agreements, and in particular of the WTO Agreements. For example, Article I:1 of the GATT provides for an unconditional MFN obligation:

"With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation ... and with respect to all rules and formalities in connection with importation and exportation, ... any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties."

Trade experts consider MFN clauses to have the following benefits: (see [1])

• A country that grants MFN on imports will have its imports provided by the most efficient supplier. This may not be the case if e.g. tariffs differ by country.
• MFN allows small countries, in particular, to participate in advantages that large countries grants to other large countries, whereas on their own, small countries would often be not 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 establish rules 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. E.g., 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. However, as MFN rules may conflict with other objectives such as regional economic integration (e.g. in NAFTA or the EU), trade agreements usually allow for exceptions.

[edit] References

[1] W. J. Davey / J. Pauwelyn, MFN-Unconditionality, in: T. Cottier / P. C. Mavroidis (eds.), Regulatory Barriers and the Principle of Non-Discrimination in World Trade Law: Past, Present, and Future, 2000