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What are MFN and National treatment? |
What are MFN and National treatment? Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members. Most-favoured-nation (MFN) treatment. It is so important that it is the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) (Article 2) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), although in each agreement the principle is handled slightly differently. Together, those three agreements cover all three main areas of trade handled by the WTO (World Trade Organization). Some exceptions are allowed. For example, countries can set up a free trade agreement that applies only to goods traded within the group 鈥? discriminating against goods from outside. Or they can give developing countries special access to their markets. Or a country can raise barriers against products that are considered to be traded unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate. But the agreements only permit these exceptions under strict conditions. In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners 鈥?whether rich or poor, weak or strong. 2. National treatment: Treating foreigners and locals equally. Imported and locally-produced goods should be treated equally 鈥?at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This principle of 鈥渘ational treatment鈥?(giving others the same treatment as one鈥檚 own nationals) is also found in all the three main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS), although once again the principle is handled slightly differently in each of these. National treatment only applies once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax. MFN means most favored nation. It is a clause in treaties between nations. The clause says that if I give tariff relief to another country, I have to give the same relief to my most favored nations as well. It ensures that your MFNs are always paying the lowest tariff rate on any goods they export to your country. |
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