Most Favored Nation Status Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Most favored nation (MFN) status, or treatment, is a multilateral trading agreement between member countries. MFN status stipulates that each country extend tariff and regulatory treatment to other member countries that is no less preferential than their existing trade agreements. The agreement ensures that those from one country will not be treated worse that those from any other country. In effect, MNF status simplifies trade agreements since all member countries are extended the best trade conditions automatically without renegotiation. For example, if Mexico reduces tariffs on sugar from Mauritius, it must do so for all countries with whom it has MFN status, unilaterally. MNF status tends to reduce tariffs between all participating nations.

In the late 19th and early 20th centuries, MNF status was included in several bilateral trade agreements. MNF status gained popularity after World War II such that the General Agreement on Tariffs and Trade (GATT) included MFN status as its first article. MFN status is the second article in the General Agreement on Trade in Services (GATS) and article four in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The World Trade Organization (WTO) superseded these three agreements. All 152 members of the WTO adhere to the MFN status agreement. Although MFN status has its faults, it is seen as the cornerstone of fairness in trade relations.

Political and economic agreements are exceptions to MFN status. Customs unions and free trade zones (usually with strict conditions) can supersede MFN status for those outside the zone. For example, the European Union extends preferential trade conditions to member countries without similar treatment for others. In 1979 the GATT created the Enabling Clause that allows developed nations to extend preferential trade policy to developing nations without unilaterally extending the same treatment to MFN nations. To promote the growth of nascent industries and the standard of living in developing nations, WTO has also implemented escape clauses. These allow special concessions to be made for either case. Other challenges include human rights concerns and environmental policy.

In 1998 U.S. President Bill Clinton renamed the MFN status to Normal Trade Relations (NTR). This agreement allows producers in the country with whom the United States has NTR to benefit from lower tariffs on exports.

Bibliography:

Robert Betancourt, Most Favored Nation (Xlibris, 2001);
Rodney Ludema and Anna Maria Mayda, Do Countries Free Ride on MFN? (Centre for Economic Policy Research, 2005);
Jack M. Mintz, Most Favored Nation: Building a Framework for Smart Economic Policy (C.D. Howe Institute, 2001);
Vladimir Pregelj, Normal-Trade-Relations (Most-Favored-Nation) Policy of the United States (Congressional Research Service, Library of Congress, 2005);
Faruk Sengul, Essays on the Most Favored Nation Clause and the World Trading System, D. diss., Southern Methodist University, 2006;
World Trade Organization, “Principles of the Trading System,” wto.org (cited March 2009).

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