'MOST FAVORED NATION CLAUSE'

A level of status given to one country by another and enforced by the World Trade
Organization. A country grants this clause to another nation if it is interested in
increasing trade with that country. Countries achieving most favored nation status
are given specific trade advantages such as reduced tariffs on imported goods.
Special consideration is given to countries that are classified as "developing" by the
World Trade Organization.
During the Clinton presidency, congressional representatives heartily debated the
merit of granting most favored nation status (MFN) to China and Vietnam.
Proponents of granting MFN status argued that a reduction in tariffs on Chinese and
Vietnamese goods would give the American consumer access to quality products at
relatively low prices, and would serve to enhance a mutually beneficial trade
relationship
with
the
two
rapidly
developing
economies.
Meanwhile, opponents argued that granting MFN status to the two nations would be
unfair given their history of human rights violations. Others thought that the inflow
of cheaper goods from the China or Vietnam could put some Americans out of work.
Wiki:

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
low tariffs 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 bilateral investment treaties include only substantive rules or also
procedural protections.[1]
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 and customs unions.[2] 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.
The earliest form of the most favoured nation status can be found as early as in the
11th century. Today's concept of the most favoured nation status starts to appear in
the 18th century, which is when the division of conditional and unconditional most
favoured nation status also began.[3] In the early days of international trade, "most
favoured nation" status was usually used on a dual-party, state-to-state basis. A
nation could enter into a "most favoured nation" treaty with another nation. With
the Jay Treaty in 1794, the US granted "most favoured nation" trading status to
Britain.
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 theSecond World War.[citation needed]
Benefits[edit]
Trade experts consider MFN clauses to have the following benefits:[citation needed]

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 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. 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.