Most-Favored-Nation Status


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Most-Favored-Nation Status

A method of establishing equality of trading opportunity among states by guaranteeing that if one country is given better trade terms by another, then all other states must get the same terms.

In the twentieth century, the history of world trade is dominated by the move from protective tariffs to free trade. International agreements have permitted most of the world's nations to export their products without facing discriminatory duties. A key concept in the liberalization of trade is most-favored-nation (MFN) status.

MFN status is a method of preventing discriminatory treatment among members of an international trading organization. MFN status provides trade equality among partners by ensuring that an importing country will not discriminate against another country's goods in favor of those from a third. Once the importing country grants any type of concession to the third-party country, this concession must be given to all other countries.

For example, assume that the United States government negotiates a bilateral trade agreement with Indonesia that provides, among other things, that a duty of $1 will be charged for imported Indonesian television sets. All countries that have MFN status will pay no more than a $1 duty to export televisions to the United States. If the United States later negotiates a duty of 75¢ with Japan for imported televisions, Indonesia and all other MFN countries will pay 75¢, despite Indonesia's original agreement to pay more duty.

The number of countries with MFN status increased after World War II with the General Agreement on Tariffs and Trade (GATT) treaty, which was signed by many nations in 1948. Article I of the GATT requires that exports of all contracting parties to the treaty should be treated alike by other contracting parties, immediately and without condition. Thus, each member's exports are treated on the best terms (or "most favored" terms) available to any GATT member.

The MFN status proclaimed in the GATT has been granted to about 180 countries. Only a handful of communist countries have been denied MFN status.

The United States is forbidden by law to grant MFN status to communist countries that do not have free-market economies. The practical effect is that imports from these countries are subject to much higher tariffs. An amendment to the Trade Act of 1974, however, created a loophole. The president may waive the MFN restriction on an annual basis if the communist country permits free emigration or if MFN status would lead to increased emigration. By law, the president must tell Congress each year of the administration's intention to renew or deny MFN status benefits to a communist country. Congress has sixty days to overturn the decision and would then need a two-thirds majority to override a presidential Veto.

China has been the main beneficiary of this loophole. Since 1979 China has been granted MFN status. After China suppressed its democracy movement and the Tiananmen Square protest in 1989, Congress opposed continuation of the country's MFN status, yet both President george h. w. bush and President bill clinton renewed China's MFN benefits.

References in periodicals archive ?
Both countries designated the other with most-favored-nation status.
An example is President Nixon's proposal to grant most-favored-nation status to the Soviet Union during the 1970s.
Pregelj, Vladimir (1993) Restoring Most-Favored-Nation Status to Romania (CRS Report for Congress-93-584 E, June 14, 1993), Washington DC: Congressional Research Service.
Joint support for TAPI could -- along with enhanced trade through most-favored-nation status and liberalized visa regimes for business people -- support an effort by Indian Prime Minister Narendra Modi and Pakistani Prime Minister Nawaz Sharif to enhance political ties through commercial opportunities.
Under the accord, Saudi Arabia will give Japan a most-favored-nation status, benefiting Japanese companies operating in the country," said the report, which was not independently verified by Saudi officials yesterday.
The United States welcomed the Government of Pakistan's plans to extend most-favored-nation status to India by the end of the year.
Topics addressed by the volume's 11 chapters include sources of international investment law; the role of soft law in international law; the effectiveness of soft law instruments in international investment law; soft law instruments in environmental, commercial, and GATT/WTO law as potential models; learned lessons from the evolution of investment protection based on public international law treaties; and the relative "ripeness" for codification of principles of expropriation and most-favored-nation status.
In 1987, former US ambassador to Romania David Funderburk asserted in his book Pinstripes and Reds" that the US Department of State had been deceived into giving Romania Most-Favored-Nation status and that US diplomats had been hoodwinked by Ceausescu to believe the false pretense of Romania's independence from Moscow.
The context for the meeting and the remarks, Beckerman explained, was the Jackson-Vanik Amendment, which was then a proposal (it was passed the next year) that linked most-favored-nation status in trade deals with the potential trade partner's emigration policies.
At a recent Woodrow Wilson Center event on Capitol Hill, Moskalenko expressed ambivalence about the prospect of Russia's graduation from the strictures of the Jackson-Vanik Amendment, which denies most-favored-nation status in trade relations to certain states characterized by nonmarket economies and restrictive emigration policies.
Congress inserted itself into this debate with passage of the Jackson-Vanik amendment, signed into law by President Gerald Ford on January 3, 1975, which denied most-favored-nation status to countries that restricted emigration.
The curious exceptions are Argentina and South Africa, which seem to enjoy most-favored-nation status this year.