UPSC Express

What is Most Favoured Nation’ (MFN) status? 

• The WTO as the trade-promoting body has certain key principles or philosophical themes for its working.
• One such principle is non-discrimination which is well scripted in Most Favored Nation (MFN) treatment.
• The MFN is a status or treatment given by one country to another in trade matters.
• It means that the recipient country of MFN will nominally get equal trade advantage as the ‘most favoured nation’ by the country granting the treatment.
• Though the MFN status says the receiving country is the most favoured by the issuing country; the meaning is slightly different.

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• The real meaning is that the receiving country will not be treated disadvantageously by the issuing country in trade matters vis a vis other countries.
• Under WTO, countries cannot normally discriminate between their trading partners.
•  If a special favour is granted to a particular country, it should be extended to all other WTO members.
• In this respect, the MFN is so important that it is the first article of the GATT, which governs trade in goods.
• The MFN status was accorded to Pakistan by India in 1996 as per India’s commitments as a member of the World Trade Organisation (WTO).
• Pakistan, a founding member of the WTO like India, is yet to grant the MFN tag to India (and Israel).

Exceptions for MFN: 

• MFN at the same time 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 are in different forms like reduced tariff rates from developing country imports, concessions that allows developing countries to give subsidies to their production sectors etc.
• All these exceptions are subjected to strict conditions.
• In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners — whether rich or poor, weak or strong.
• Each member treats all the other members equally as “most-favoured” trading partners.