Most Favored Nation (MFN) Status – UPSC Prelims

What is MFN Status?
  • World Trade Organization (WTO) members commit to treat other members equally so they can all benefit from each other’s lowest tariffs, highest import quotas and fewest trade barriers for goods and services.
  • This principle of non-discrimination is known as Most Favoured Nation (MFN) treatment.
  • This is one of the measures which ensures trade without discrimination. Another one is ‘National Treatment ‘.
  • Article 1 of the General Agreement on Tariffs and Trade (GATT), 1994, requires every WTO member country to accord MFN status to all other member countries.
  • There are some exceptions, such as when members strike bilateral trade agreements or when members offer developing countries special access to their markets.
  • For countries outside the WTO, such as Iran, North Korea, Syria or Belarus, WTO members can impose whatever trade measures they wish without flouting global trading rules.
  • In international trade, MFN status (or treatment) is awarded by one nation to another.
  • For example, India accorded MFN status to all WTO member countries, including Pakistan, from the date of entry into force of the so called Marrakesh Agreement, establishing the WTO.
  • A nation with MFN status will not be discriminated against and will not be treated worse than any other nation with MFN status.
  • If a country grants someone a special favour (such as a lower customs duty rate for one of their products) then it will have to do the same for all other WTO members.
  • There is no formal procedure for suspending MFN treatment and it is not clear whether members are obliged to inform the WTO if they do so.
  • India suspended Pakistan’s MFN status in 2019 after a suicide attack by a Pakistan-based Islamist group killed 40 police. Pakistan never applied MFN status to India.
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