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How did most-favored-nation treatment become the cornerstone of WTO trade law?
In international economic relations and politics, "most-favored-nation" (MFN) is the level of treatment provided by one country to another in international trade. To do so, countries treated in this way must actually obtain trade advantages equivalent to those of the "most favored nation", such as low tariffs or high import quotas. It follows that a country that receives MFN treatment cannot be treated less favorably than any other country with MFN status among the granting countries.
Under the rules of GATT and WTO, the nature of "most-favored-nation treatment" extends to mutual bilateral relations and forms a strong principle of non-discrimination in global trade.
In the World Trade Organization (WTO), members agree to grant most-favored-nation treatment to each other. However, exceptions to this treatment allow for preferential treatment for developing countries, regional free trade areas and customs unions, etc. This arrangement makes the most-favored-nation treatment and national treatment principles together form the basis of WTO trade law.
History of Most Favored Nation Treatment
The earliest form of MFN treatment dates back to the 11th century, while the modern concept began in the 18th century. Bilateral "most-favored-nation" agreements were often signed between countries at the time, such as the Treaty of Madrid between Spain and Britain in 1667 and the Jay Treaty in 1794. With the establishment of GATT after World War II, the concept of most-favored-nation treatment was further institutionalized.
The existence of most-favored-nation treatment is intended to ensure non-discriminatory trade among all WTO members and promote fairness and transparency in global trade.
Advantages of Most-Favoured-Nation Treatment
Trade experts believe that most-favored-nation treatment has multiple advantages, which can increase trade creativity and reduce trade diversion. When a country provides most-favored-nation treatment for imports, it means that imported goods will come from the most efficient suppliers, leading to the optimal allocation of resources. Additionally, this policy helps smaller countries gain trade advantages achieved between larger countries.
In addition, a unified tariff policy simplifies trade rules and makes them more transparent. In theory, if all countries in the world grant most-favored-nation treatment to each other, complex rules of origin can be avoided, thereby reducing trade costs.
Exceptions
Nevertheless, GATT members generally agree that the most-favored-nation principle should be relaxed in certain circumstances, especially for developing countries. In regional trading systems, such as the European Union and the North American Free Trade Agreement (NAFTA), tariffs are reduced or eliminated between member countries, but tariff barriers remain with other countries.
WTO rules allow any country to withdraw previously granted MFN status without further explanation, particularly on security grounds.
Country-specific policies
Most-Favoured-Nation Status of the United States
In the 1990s, the United States' most-favored-nation status for the People's Republic of China sparked controversy, primarily due to China's performance on the sale of military technology and human rights issues. Finally, this treatment was officially established in 2001. The United States' MFN treatment was legally renamed "Permanent Normal Trade Relations."
India's Most Favoured Nation Status
According to the WTO accession treaty, member countries automatically extend MFN treatment to each other. India’s withdrawal of MFN treatment with Pakistan in 2019 shows that relations in international trade are not only governed by economic factors but also influenced by geopolitics.
ConclusionIn summary, MFN treatment plays a vital role in the WTO by promoting non-discriminatory trade among countries. However, in today's complex international trade environment, how to find a balance between ensuring trade fairness and meeting national security needs will still be a question worth pondering?
