Most favoured nation clause

In international economic relations and international politics, "most favored 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 favored 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.

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. Together with the principle of national treatment, MFN is one of the cornerstones of WTO trade law.

"Most favored 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 favored nation status can be found as early as in the 11th century. Today's concept of the most favored nation status starts to appear in the 18th century, which is when the division of conditional and unconditional most favored nation status also began. In the early days of international trade, "most favored nation" status was usually used on a dual-party, state-to-state basis. A nation could enter into a "most favored nation" treaty with another nation. With the Jay Treaty in 1794, the US granted "most favored nation" trading status to Britain.

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