MFN

Definition: Most Favored Nation status is when a country enjoys all the lowered tariffs and reductions of trade barriers. It is conferred between two or more countries that have a trade agreement. All members of the World Trade Organization (WTO) receive the Most Favored Nation Status. This means they all receive the same trade benefits as all other members. This is critically important for smaller members, because it lowers the cost of theirexports and makes them more competitive. This, in turn, increases their exports and their country's economic growth. The downside of Most Favored Nation status is the country must also grant the same to all other members of the agreement, or of the WTO. This means they cannot protect their country's industries from cheaper goods produced by foreign countries. Many countries were excited to get Most Favored Nation Status, so they could export goods cheaply to the U.S. market, only to find they lost their local agricultural industry. Local farmers could not compete with subsidized U.S. and EU food. Many farmers had to move to the cities to find jobs. Then, when food prices escalated thanks to commodities traders, there were food riots.

NEW DELHI: India today said with Pakistan agreeing to open its market completely for Indian goods by end-2012, the process of grant of most-favoured nation status to New Delhi will be complete. "With the entire phasing out of the negative list, the transition process to Most Favoured Nation (MFN) treatment shall be completed," Commerce and Industry Minister Anand Sharma said in a written reply to the RajyaSabha. Pakistan has agreed to open its market for over 7,000 items from India in the next three months. At the end of two-day talks held between commerce secretaries of the two countries here on November 14-15, Islamabad agreed to widen market access for Indian goods by moving from a Positive List (PL) to Negative List (NL) trade regime by February, 2012. This would translate into a huge opportunity for Indian businessmen, who will be able to ship all but a few items to a the Pakistani market -- with a population of 150 million -- through the land, air and sea route. "In the first stage, Pakistan will transition from the current Positive List (PL) approach to a Negative List(NL)... A small NL shall be finalised and ratified by February, 2012. Thereafter, all items other than those on the NL shall be freely exportable from India to Pakistan," the joint statement said. In the second phase, the NL would be phased out. "The timing for this phasing out will be announced in February, 2012... and it is expected that the phasing out will be completed before the end of 2012," the statement said. At present, Pakistan allows the import of just 1,946 Indian items, listed in the Positive List. India and Pakistan, which saw their relations hit a low after the Mumbai terror attack in November, 2008, have been reaching out to each other in the past few months, realising that trade can bridge their political gaps. At present, bilateral trade between the two countries stands at USD 2.7 billion.

History
In the early days of international trade, most favoured nation status was usually used on a dual-party, state-to-state basis. A nation could enter into a most favoured nation treaty with another nation. With the Jay Treaty in 1794, the U.S. granted most favoured nation trading status to Britain. Generally bilateral, in the late 19th and early 20th century unilateral most favoured nation clauses were imposed on Asian nations by the more powerful Western countries (see Open Door Policy). One particular example of "most favoured nation" status is theTreaty of Nanking as part of the series of unequal treaties. It was implemented in the aftermath of the First Opium War between Great Britain and Chinese Qing Dynasty involving the Hong Kong islands. After World War II, 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 in 1994. The World Trade Organization requires members to grant one another most favoured nation status. A most favoured nation clause is also included in the majority of the numerous bilateral investment treaties concluded between capital exporting and capital importing [citation needed] countries after the Second World War.

Benefits
Trade experts consider MFN clauses to have the following benefits:
[citation needed]

A country that grants MFN on imports will have its imports provided by the most efficient supplier. This may not be the case if tariffs differ by country. MFN allows smaller countries, in particular, to participate in the advantages that larger countries often grant to each other, whereas on their own, smaller countries would often not be powerful enough to negotiate such advantages by themselves.

Granting MFN has domestic benefits: having one set of tariffs for all countries simplifies the rules and makes them more transparent. It also lessens the frustrating problem of having to establish rules of origin to determine which country a product (that may contain parts from all over the world) must be attributed to for customs purposes.

MFN restrains domestic special interests from obtaining protectionist measures. For example, butter producers in country A may not be able to lobby for high tariffs on butter to prevent cheap imports from developing country B, because, as the higher tariffs would apply to every country, the interests of A's principal ally C might get impaired.

As MFN clauses promote non-discrimination among countries, they also tend to promote the objective of free trade in general. [edit]Exceptions GATT members recognized in principle that the most favoured nation rule should be relaxed to accommodate the needs ofdeveloping countries, and the UN Conference on Trade and Development (established in 1964) has sought to extend preferential treatment to the exports of the [citation needed] developing countries. Another challenge to the most favoured nation principle has been posed by regional trade blocs such as the European Union and the North American Free Trade Agreement (NAFTA), which have lowered or eliminated tariffs among the members while maintaining tariff walls between member nations and

the rest of the world. Trade agreements usually allow for exceptions to allow for regional economic [citation needed] integration.