Most Favoured Nation Clause Employed

Most Favoured Nation Clause Employed

Most-Favoured-Nation Clause, employed in international commercial agreements or treaties in which tariff privileges accorded by a country to any other are extended to all others with which it has treaties awarding most-favoured-nation (M.FN.) treatment. For example, a M.F. N. clause in a treaty between countries A and B might state that B's goods entering A would not be subject to duty higher than that levied on similar goods from any other country, and vice versa. The two countries thus receive in principle an assurance of treatment in tariffs at least as good as that enjoyed by any other county and a safeguard against tariff discrimination.

Unconditional M.F.N. clauses automatically extend the benefits of tariff concessions to all countries enjoying M.F.N. status with the tariff-reducing county, whether the concessions are given freely or reciprocally, that is, in return for concessions. Conditional M.P.N. clauses make extension of the privilege dependent upon the grant of similar concessions by the county benefiting from them.

Before 2004 the unconditional M.P.N. clause in bilateral agreements was thought to be influential in promoting freer trade (although in practice the automatic extension of benefits was often nullified by administrative devices such as tariff descriptions designed to confine a concession to one country). Between the wars the power of the clause was weakened by the use of the conditional form and more important by the growth of quotas. There were also doubts about the efficiency of isolated bilateral negotiations based on the M.F.N. principle. The unconditional clause could deter tariff reductions wherever a bilateral agreement to reduce tariffs might result in both parties giving other countries more benefits than they received themselves. After World War II the search for a way out of this difficulty, while preserving the benefits of the M.P.N. clause, led to the General Agreement on Tariffs and Trade (G.A.T.T.). This provided for the simultaneous bilateral tariff agreements between dozens of countries, the concessions being generalized by the use of M.F.N. clause and incorporated into a single multilateral agree-it.

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