Most Favored Nation means to treat other individuals equally The World Trade Organization agreements do not generally allow nations to discriminate amongst their trading partners. Grant someone a unique benefit (for one of its goods, by decreasing the customs tax rate), and do the same for all other WTO members. Most Favored Nation is a basic concept of commerce, guaranteeing that products and services are non-discriminated; therefore, if advantages and concessions are given to another Member, it is connected to offering the same benefit and concession to one member. If one nation has the MFN status then in that case the country will not get any discriminatory treatment than any other member nation .This assures no prejudice and no discrimination.
CHARACTERSTICS OF MOST FAVORED NATION ARE AS FOLLOWS:
- Treat others equally
- Treat foreigners and locals equally
- Free Trade- To promote free trade and can only be promoted if trade barriers are reduced and non-tariff barriers are reduced as well such as quotas, certification etc.
- Predictability- whenever government or member countries makes policies then they should be predictable and not ambiguous.
RATIONALE BEHIND MOST FAVORED NATION
The rationale behind MFN were the international law and economic rationale.
In the instance of Border Tax Adjustment, the jurisprudence of the notion of "likeness" was evolved by the panel setting forth four broad criteria to define "like" products.
- The product's property, nature and quality.
- Product end uses
- Tastes and preferences of the consumers.
- Product tariff categorization.
THE CASE FOR EVALUATION WERE
Japan Alcoholic Beverages Case There was a very interesting case for the “like product” which is known as Japan alcoholic beverage dispute case where the question was whether “Sochu” local alcohol of Japan, is similar to vodka, whiskey, gin and rum. The panel held that Sochu and Vodka can be a like product but cant be a like to whiskey, rum and gin because Sochu and Vodka share the same physical characteristics and have the similar end use, whereas sochu and rum are not like product because of the ingredients, Sochu and Whiskey have different taste and physical properties. Sochu and Gin cannot be because Gin has some addictive added into it.
In the case of EC Banana the question of dispute revolved around the banana’s import regime of the EC. The EC identified the three types of categories
Bananas from EC itself which received duty free treatments.
Bananas from ACP categories which again received duty free treatment which was allocated to countries from Arabs and Africa subjected to quotas which was allocated to 12 countries in total known as traditional bananas. ACP countries which were also part of 12 countries but exceeded the export quotas but were known as non-traditional bananas. It was adjudicated that the idea of having a non-discrimination policy is that like products can be treated equally irrespective of their origin. It further clarified that the obligation of non-discrimination can be waived in case if there are custom unions and free trade areas approved by article 24 of the GATT.
BENEFITS OF MFN:
- The most favoured nation clause boosts trade and investment and diminishes trade diversion and mainly fosters greater free trade between nations. It offers more effective results as the lowest cost manufacturers can export items without government interference to regions with the highest demand.
- The most-favoured-nation clause permits smaller nations to take part in benefits they typically cannot obtain as they are ignored by the major significant global trade partners. This provision allows tiny nations to negotiate conditions of trade that they would not ordinarily obtain.
- Implementation of the most favoured nation clause streamlines the complicated bilateral trade agreements. It simplifies trade legislation if all nations have the same trading conditions.