Most-favored-nation (MFN) provisions, laid out in Article I of the 1994 General Agreement on Tariffs and Trade (GATT), require countries not to discriminate between goods on the basis of their origin or destination. The United States had these types of favorable trade policies with European nations as long ago as 1873, and Latin American nations practiced them often with East Asian nations, at least as far back as the Treaty of Wanghia in 1844. MFN provisions have been referred to as the cornerstone of all modern commercial treaties; they help create a level playing field in international economic relations.
The core of MFN provisions is that two or more nations will enter into a trade agreement, usually formal in nature and legally woven into a treaty, which details how these nations will conduct economic trade relations with each other. Countries with MFN provisions agree to make the international trade process less costly by either reducing or eliminating tariffs (taxes placed on imports), enabling all countries in the contract, regardless of their world economic standing, to be placed on equal footing for trade.
There are two types of MFN provisions—unconditional and conditional. With unconditional MFN provisions, countries practice economic-incentive programs with virtually no limits; there are no criteria or obligations contracted countries must meet or adhere to in order to participate. Conditional MFN provisions are a bit more complicated. These often are put in place when a fully developed nation, such as the United States, sets criteria that developing nations, such as China or Vietnam, must meet before trade will take place. In the United States–China example, President Bill Clinton (b. 1946) offered to renew China's MFN status if the Chinese government agreed to address their problem of human-rights violations.
Most-favored-nation provisions have many economic benefits because they extend equal tariff protection to all participating nations. They allow better competition by helping the global economy function, they create an excellent source of revenue for developing nations, and they free developed countries, such as the United States, to pursue technological advances while developing and recently industrialized nations provide manual labor and produce basic textiles and food products. In regards to competition, goods and services to compete on a global scale, which gives the consumer more choices. Due to reduction of tariffs, it puts all goods on equal footing. Most-favored-nation provisions represent an obligation to treat the activities of a particular foreign country or its citizens at least as favorably as it treats the activities of any other country.
SEE ALSO GATT, WTO.
Bartlett, Donald, and Steele, James. "Most Favored Lobby." Washington Monthly 28 (December 1996): 18–22.
Cohen, Jerome, and Bersani, Matthew D. "Leveling the Playing Field for U.S. Firms in China." Beyond MFN: Trade with Chinese and American Interests, ed. James Lilley and Wendell Wilkie. Washington, DC: AEI Press, 1994.
Jackson, John. The World Trading System, Law, and Policy of International Economic Relations. Boston: Massachusetts Institute of Technology Press, 1989.
Lord, Winston. "MFN Decision and U.S. Chinese Relations." United States Department of State Dispatch 7 (June 17 1996): 321–323.
Nancy S. Lind