Internal International Trade Law
Internal International Trade Law
Internal International Trade Law
“Most-Favoured-Nation” (“MFN”) treatment — mandates that all members offer each other
the same tariff and regulatory treatment that is accorded to the product of any one member at
the time of import or export of “similar products,” regardless of which member initially
provides such benefits. If nation A (a WTO member) agrees with country B (which need not
be a WTO member) to lower the tariff on product X to five percent through talks, this “tariff
rate” must also apply to all other WTO members under the MFN rule. To rephrase, if a member
state favours one member nation on a given subject, it must treat all members equally on that
same topic. The concept of MFN care has been around for quite some time. An MFN clause
was commonly included in bilateral trade agreements prior to the GATT, and this helped
considerably liberalise trade. However, restrictions were imposed in the 1930s that made it
harder for the MFN principle to be put into practice. These actions allegedly contributed to the
fragmentation of the global trading system into blocs. As a result of the lessons learnt from this
blunder, an unconditional MFN clause was incorporated into the GATT after World War II.
This was done on a multilateral basis, and it has helped maintain international trade stability.
In this context, the MFN principle is especially important to uphold as a cornerstone of the
multilateral trade system. The MFN principle must be protected by using exceptions to regional
integration consistently.
Legal Framework
When it comes to tariffs, export and import rules, domestic taxes and fees, and other domestic
regulations, GATT Article 1.1 requires WTO Members to offer MFN treatment to products of
other WTO Members. What this means is that the most favourable treatment offered to the
products of any state must be applied to the “like” products of all WTO Members. If an
importing country openly applies different tariff rates to “similar items” from an exporting
country, they are breaking GATT Article 1.1. When an importing country gives differing
treatment to products that are considered to be “similar products,” this constitutes a violation
of Article 1.1 even if there is no discrimination against the product of another Member. De
facto discrimination is a common term to describe this. For instance, a government may impose
a different tax on one type of unroasted coffee compared to another type, but this differential
tariff may only affect imports from certain countries if the two types of coffee beans are not
considered to be “similar products.” That might be breaking the MFN rule 1. In the SPF
(“spruce, pine, and fir”) case involving Japan, the idea of comparable items was rigorously
interpreted. The legality of tariff classifications would be proven to the degree that it did not
discriminate against the same products from different WTO Member countries, the panel in
that decision acknowledged, recognising that each WTO Member can exercise wide discretion
as to tariff classifications.
Quantitative limits or tariff quotas on any product must be implemented in a non-discriminatory
manner with respect to like products, as per GATT Article XIII. It also requires WTO members
to assign shares in a manner as close as possible to what would be the case if import restrictions
and tariff quotas did not exist. MFN treatment in the implementation of quantitative constraints
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is provided for in Article XIII, which also serves to supplement the rules established in Article
I.
“States Trading Enterprises” means:
• Government-owned businesses that are run by a WTO member.
• WTO Members that buy or sell imports or exports from private companies that have
been awarded exclusive or special advantages.
Using their monopoly power, these companies risk violating the rules of international trade by
engaging in practices like imposing quotas or discriminating against the country of origin of
their imports. Members of the World Trade Organization are obligated by Article XXVII of
the GATT to adhere to the non-discrimination norms, which include the MFN rule.
Member states not applying multilateral trade agreements (WTO Article XIII)
If either of the following two requirements is met, then “this Agreement and the Multilateral
Trade Agreement in Annexes 1 and 2 shall not apply as between any Member and any other
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Member,” as stated in the Marrakesh Agreement Establishing the World Trade Organization
(the WTO Agreement):
1. Earlier invocation of Article XXXV of GATT 1947, which was effective as between
founding Members Members of the WTO that were Members to GATT 19475, or
Article XXXV of GATT 1947 had been invoked and was effective as between original
Members of the WTO.
2. The Ministerial Conference must approve the agreement on the terms of accession
between a Member and another Member that has acceded under Article XII if the
Member not consenting to the application has notified the Ministerial Conference of
this fact prior to the approval of the agreement on the terms of accession.
A violation of the MFN principle occurs when a Member State fails to apply for benefits that
are available to other Members. To address issues that may arise as a result of accession, the
provisions of Article XIII were drafted. If the MFN norm were properly enforced, country B
would have to grant MFN status to all the other Members upon joining the Agreement, and the
other Members would have to grant the same to country B.
While country A is already a member of the WTO, it is possible that it might not choose to have
new member B inherit its rights and responsibilities as a WTO member. Due to the fact that
two-thirds of the current membership is enough to approve an applicant’s entrance to the WTO,
it is possible that nation A will be coerced into granting MFN status to country B. Country A’s
preferences can be honoured by WTO Article XIII, which prevents a WTO partnership between
Country A and Country B. However, if more than a third of the membership, including country
A, has reasons for not having a WTO relationship with country B (in which case they will
object to the accession itself), then WTO Article XIII provides a method for the admission of
country B by providing for non-application. U.S. officials informed the General Council in
January 1995 that their country will not be applying the MTAs listed in Annexes 1 and 2 to
Romania. However, the United States withdrew their invocation in February 1997.
Additionally, the United States informed Mongolia, the Kyrgyz Republic, and Georgia that it
would not apply the aforementioned accords to them. This notification was withdrawn for
Mongolia in July 1999, for the Kyrgyz Republic in September 2000, and for Georgia in January
2001.
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are required to treat imported goods no less favourably than they treat items of national origin,
effectively removing “hidden” domestic trade obstacles. To keep the scales of justice in the
international trading system in equilibrium, it is crucial that all parties adhere to this concept.
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Domestic subsidies
To avoid violating other sections of Article III and the Agreement on Subsidies and
Countervailing Measures, GATT Article III:8(b) permits the payment of subsidies only to
domestic producers as an exception to the national treatment requirement. Subsidies are
exempted from the rule since they are a valid instrument of policy and fall mostly within the
purview of national policymakers.
Yet, the Agreement on Subsidies and Countervailing Measures set stringent limits on the use
of subsidies due to the possibility of adverse effects on trade.
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