Most Favoured Nation Principle
About
- The Most Favoured Nation (MFN) principle is a fundamental rule of the World Trade Organization (WTO) that ensures countries do not discriminate between their trading partners.
- If a WTO member grants favourable trading terms—like lower tariffs—to one country, it must extend the same benefits to all other WTO members.
- This promotes equality and fairness in international trade.
- The WTO has made the MFN principle part of its rules under the General Agreement on Tariffs and Trade (GATT) – to which India is a signatory.
General Agreement on Tariffs and Trade:
- GATT, signed in 1947, is a treaty minimizing barriers to international trade by eliminating or reducing quotas, tariffs, and subsidies. It was intended to boost economic recovery after World War II.
- GATT was expanded and refined over the years, leading to the creation in 1995 of the World Trade Organization, which absorbed the organization created to implement GATT.
- The Council for Trade in Goods (Goods Council) is now responsible for the GATT and consists of representatives from all WTO member countries.
Exceptions:
- Some exceptions are allowed. For example:
- countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside.
- Or they can give developing countries special access to their markets.
- Or a country can raise barriers against products that are considered to be traded unfairly from specific countries.
- And in services, countries are allowed, in limited circumstances, to discriminate.
- But the agreements only permit these exceptions under strict conditions.