Most favoured Nation Status
Context:
The United States, the European Union, Britain, Canada and Japan are planning to move jointly to revoke Russia’s “most favoured nation”over its invasion of Ukraine.
What is MFN Status?
Most Favoured Nation is a treatment accorded to a trade partner to ensure non-discriminatory trade between two countries vis-a-vis other trade partners.
- Under WTO rules, a member country cannot discriminate between its trade partners. If a special status is granted to a trade partner, it must be extended to all members of the WTO.
Does MFN mean preferential treatment?
In literal explanation, MFN doesn’t mean preferential treatment. Instead it means non-discriminatory trade that ensures that the country receiving MFN status will not be in a disadvantageous situation compared to the granter’s other trade partners.
- When a country receives MFN status, it is expected to lower trade barriers and decrease tariffs.
- It is also expected to open up the market to trade in more commodities and free flow of goods.
Removal of MFN status:
There is no formal procedure for suspending MFN treatment and it is not clear whether members are obliged to inform the WTO if they do so.
- India suspended Pakistan’s MFN status in 2019 after a suicide attack by a Pakistan-based Islamist group killed 40 police. Pakistan never applied MFN status to India.
What are the pros of MFN?
MFN status is extremely gainful to developing countries.
- Provides access to a wider market for trade goods.
- Reduced cost of export items owing to highly reduced tariffs and trade barriers.
- Lead to more competitive trade.
- Cuts down bureaucratic hurdles and various kinds of tariffs are set at par for all imports.
- Increases demands for the goods and gives a boost to the economy and export sector.
- Heals the negative impact caused to the economy due to trade protectionism.
What are the disadvantages of MFN?
- The main disadvantage is that the country has to give the same treatment to all other trade partners who are members of the WTO.
- This translates into a price war and vulnerability of the domestic industry as a result.
- The country is not able to protect domestic industry from the cheaper imports and in this price war, some domestic players have to face heavy losses or growth restrictions.
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