Most Favoured Nation (MFN)


    In News 

    • Recently, the United States, the European Union, Britain, Canada and Japan were due to move jointly to revoke Russia’s “most favoured nation” (MFN) status over its invasion of Ukraine.

    What is ‘Most Favoured Nation’(MFN) status?

    • The World Trade Organisation’s 164 members commit to treating 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. 
    • 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 Russian ally Belarus, WTO members can impose whatever trade measures they wish without flouting global trading rules.
    • Origin: 
    • The most-favoured-nation (MFN) principle is a cornerstone of the multilateral trading system conceived after World War II. 
    • It seeks to replace the frictions and distortions of power-based (bilateral) policies with the guarantees of a rules-based framework where trading rights do not depend on the individual participants’ economic or political clout. 
      • Rather, the best access conditions that have been conceded to one country must automatically be extended to all other participants in the system.

    Benefits of MFN

    • Being accorded MFN status is highly beneficial to countries, especially developing ones. The MFN status grants a country more access to a foreign market.
    • Moreover, as trade barriers are lowered, the cost of exports reduces and the products have more competition, giving businesses a chance to grow.
    • It goes without saying that when businesses do well and exports increase, a country’s economy also sees substantial growth — making it a win-win situation for all.
    • MFN status also helps in cutting down red tape; different tariffs and customs don’t have to be calculated for each import since they are all the same.

    Procedure for suspending MFN status

    • 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.

    What does losing MFN status mean?

    • Revoking Russia’s MFN status sends a strong signal that the United States and its Western allies do not consider Russia a economic partner in any way, but it does not in itself change conditions for trade.
    •  It does formally allow the Western allies to increase import tariffs or impose quotas on Russian goods, or even ban them, and to restrict services out of the country. 
      • They could also overlook Russian intellectual property rights.
    • Ahead of MFN status removal, the United States had already announced a ban on imports of Russian oil and gas.
    • The European Union has already banned about 70% of all imports, such as tobacco, potash and products made of wood or steel, from non-WTO member Belarus. 
    • However, it is waiting for formal adoption of MFN suspension before taking similar action against Russia.