Apr 1, 2015

IR - One Definition A Day: MFN - Most Favoured Nation

IR - One Definition A Day:

MFN - Most Favoured Nation

This fundamental principle of international trade seeks to establish and advance the principle of equality of treatement and non-discrimination among trading states. The principle may be illustrated by taking a bilateral situation thus: under mfn principles, the parties will extend to each other the same advantages that they have extended to other third parties in the past, or are extending to others concurrently, or intend to extend in the future. Most favoured nation (mfn) principles are typically applied to tariffs and if these principles are applied consistently, they should lead to mutual and balanced tariff reductions.
It is generally agreed that the MFN principle began to be applied to international trade in the eighteenth century, reaching its peak in the last decades of the nineteenth. The First World War and the events thereafter led to the weakening of its application but with the formation of the General Agreement on Tariffs and Trade (GATT) in 1947 a concerted attempt was made to resuscitate these ideas by writing them into the first article of GATT. At the same time GATT allows important exceptions to the mfn principle. Crucially trade blocs, free trade areas and common markets are all except. The emergence of the United Nations Conference on Trade and Developement (UNCTAD) in the 1960s further weakened the mfn principle because the Third World called for a system of positive discrimination in their favour to replace it. This call has been recognized system of preferences between advanced industrial countries (AICS) and the Third World.
The mfn principle remains a testament to those who believed in a liberal, equal, non-discriminator international trading system.

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