most-favored-nation clause

The Columbia Encyclopedia, 6th ed.

most-favored-nation clause

most-favored-nation clause (MFN), provision in a commercial treaty binding the signatories to extend trading benefits equal to those accorded any third state. The clause ensures equal commercial opportunities, especially concerning import duties and freedom of investment. Generally reciprocal, in the late 19th and early 20th cent. unilateral MFN clauses were imposed on Asian nations by the more powerful Western countries (see Open Door). In the late 20th cent. tariff and trade agreements were negotiated simultaneously by all interested parties through the General Agreement on Tariffs and Trade (GATT), which ultimately resulted in the World Trade Organization. Such a wide exchange of concessions is intended to promote free trade, although there has been criticism of the principle of equal trading opportunities on the grounds that freer trade benefits the economically strongest countries. GATT members recognized in principle that the MFN rule should be relaxed to accommodate the needs of developing countries, and the UN Conference on Trade and Development (est. 1964) has sought to extend preferential treatment to the exports of the developing countries. Another challenge to the MFN principle has been posed by regional trading groups such as the European Union, which have lowered or eliminated tariffs among the members while maintaining tariff walls between member nations and the rest of the world. In the 1990s continued MFN status for China sparked U.S. controversy because of its sales of sensitive military technology and its use of prison labor, and its MFN status was only made permanent in 2000. All of the former Soviet states, including Russia, were granted MFN status in 1992.

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