GATT Provisions on

MFN & NT
• The Most Favoured Nation (MFN) principle is a key
element of the General Agreement on Tariffs and Trade
(GATT), an international trade treaty that formed the
foundation for the World Trade Organization (WTO).
MFN ensures that any concession, privilege, or favour
granted by one WTO member to the goods or services
of another WTO member must be applied to all other
members. This principle is central to ensuring non-
discrimination in international trade.
•
• GATT Article I: General Most-Favoured-Nation
Treatment
• 1. Basic Concept of MFN:
• MFN treatment, under Article I of the GATT, ensures that
any favorable treatment granted by one country to the
products or services of another country must also be
extended to the products or services of all other WTO
members, without discrimination. The rule is applied
both to customs duties and charges on imports and
exports and to various rules and regulations affecting
trade.
•
Key provisions include:

• Non-discrimination on customs duties and charges: If a

country reduces tariffs or imposes lower customs duties on
imports from one trading partner, it must apply the same
rates to imports from all other WTO members.
• Non-discrimination on rules affecting trade: This applies
to various internal measures, such as tax measures,
subsidies, and other regulations that affect trade. If one
country grants favorable conditions to one trading partner, it
must extend the same conditions to others.
• Non-discrimination on exports: The principle also applies
to measures affecting exports. If a country grants favorable
export conditions to one country, it must extend the same
terms to all other WTO members.
•
2. Scope of Application:

• Article I covers a wide range of trade measures, ensuring that WTO

members treat each other equally regarding:
• Customs duties and charges of any kind imposed on imports or
exports.
• Methods of levying such duties and charges.
• All rules and formalities in connection with imports or exports,
such as licensing and valuation procedures.
• Internal taxes and other domestic measures that affect the
sale, distribution, or use of imported products.
• Charges on international transfers of funds in relation to trade.
• Regulations regarding the transport, warehousing,
inspection, and packaging of goods.
• This broad scope ensures that trade between countries remains as
open and non-discriminatory as possible.
•
3. Exceptions to MFN:

• While the MFN principle promotes equality in

international trade, there are several notable
exceptions allowed under the GATT framework,
including:
1.Customs Unions and Free Trade Areas (Article
XXIV): Members of customs unions and free trade
areas are allowed to offer more favorable treatment to
each other without extending the same terms to all
WTO members. This is because customs unions and
free trade areas are seen as promoting deeper
economic integration and liberalization.
•
2. Generalized System of Preferences (GSP):
Developed countries may offer lower tariffs or better
market access to developing countries without extending
the same terms to developed countries. The GSP allows
for special and differential treatment of developing
countries to support their economic growth.
3. Waivers and Special Agreements (Article IX):
WTO members can agree to temporarily waive the MFN
obligation in specific situations, provided that other
members approve the waiver by a supermajority vote.
• 4. Preferential Trade Agreements: Bilateral or
regional agreements that offer preferential access to
the parties involved, as long as they meet WTO
requirements and promote trade liberalization without
harming non-parties.
• 5. Developing Countries and Least Developed
Countries (Article XVIII): Developing countries may
receive special treatment in certain circumstances,
allowing them to implement measures that restrict
trade to promote economic development.
4. Specific Examples of MFN in Action:

• Tariff Reductions: When the European Union reduces

tariffs on certain goods imported from the United States, it
must extend the same tariff reductions to goods imported
from all other WTO members, such as Japan or Brazil.
• Quota Restrictions: If a country removes quota
restrictions on a specific type of import from one trading
partner, it must remove the same restrictions for other
WTO members.
• Licensing and Technical Regulations: Suppose a
country grants a more lenient import licensing process to
one member. In that case, it is required to do so for all
other members, ensuring that regulatory standards are
equally applied.
•
5. Enforcement and Dispute Settlement:

• WTO members can challenge violations of the MFN

principle through the WTO’s dispute settlement
process. If a country believes that another member is
violating the MFN principle, it can file a formal
complaint and seek remedy through the WTO’s dispute
resolution mechanism.
• In cases where a violation is found, the offending
country is expected to bring its practices into
compliance with its WTO obligations. If it fails to do so,
the complainant may seek compensation or, in some
cases, impose retaliatory measures.
•
6. Relationship to Other Trade Principles:

• The MFN principle interacts with other key principles of

the GATT, such as:
• National Treatment (Article III): National treatment
requires that imported goods be treated no less
favorably than domestically produced goods once they
have entered the market. While MFN applies to the
treatment of products at the border, national
treatment ensures fair competition within a country's
domestic market.
•
• Transparency (Article X): WTO members are required
to publish their trade regulations and make them
accessible to other members. This transparency
principle helps ensure that MFN treatment is properly
applied by requiring countries to disclose any changes
in tariffs or trade regulations.
7. Historical Evolution of MFN:

• The MFN principle was first established as a cornerstone

of the multilateral trading system in 1947, when the
GATT was created. Its roots, however, can be traced
back to bilateral trade agreements in the 19th century,
which often included MFN clauses to prevent
discrimination between trading partners.
• Over time, MFN became an essential element of global
trade, ensuring that countries could not selectively apply
trade barriers or preferences in a way that would
disadvantage some trading partners while benefiting
others. When the WTO replaced the GATT in 1995, the
MFN principle was retained and strengthened as part of
the broader system of international trade rules.
•
Conclusion:

• The Most Favoured Nation (MFN) principle under GATT

ensures fairness and equality in international trade by
preventing discrimination between trading partners. By
obligating countries to extend any favorable treatment
granted to one country to all other WTO members, the
MFN principle promotes trade liberalization and reduces
trade barriers. While there are exceptions, such as
customs unions and preferential treatment for
developing countries, MFN remains a fundamental aspect
of the international trading system. Through the WTO’s
dispute settlement mechanism, violations of the MFN
principle can be addressed, helping to maintain the
integrity of the global trading system.
•
NT under GATT – Article III
• GATT Article III requires that WTO Members provide
national treatment to all other Members.
• Article III: 1 stipulates the general principle that
Members must not apply internal taxes or other
internal charges, laws, regulations and requirements
affecting imported or domestic products in a manner
that protects domestic production.
• In relation to internal taxes or other internal charges,
Article III: 2 stipulates that WTO Members shall not
apply standards higher than those imposed on
domestic products between imported goods and “like”
domestic goods, or between imported goods and “a
directly competitive or substitutable product.”
• With regard to internal regulations and laws, Article III: 4
provides that Members shall accord imported products
treatment no less favourable than that accorded to
“like products” of national origin. In addition, in
relation to quantitative restrictions,
• Article III: 5 stipulates that no Member shall establish or
maintain any internal quantitative regulation which
requires, directly or indirectly, that any specified
amount or proportion of any product which is the
subject of the regulation must be supplied from
domestic sources.
• In determining the similarity of “like products,” GATT
panel reports have relied on a number of criteria
including the product’s physical properties, the
product’s end uses, consumer tastes and habits, and
tariff classification. WTO panels and the Appellate
Body reports utilize the same criteria (Japan - Taxes on
Alcoholic Beverages (WT/DS 8, WT/DS 10, WT/DS 11),
etc.
First sentence of GATT Article III: 2
• In determining “like products” under the first sentence
of Article III: 2, the following four factors are
considered:
• (1) the product’s properties, nature and quality,
• (2) the product’s end uses,
• (3) consumer tastes and habits, and
• (4) tariff classification. However, there was a case where
tariff classification was only subordinately considered
(Japan - Taxes on Alcoholic Beverages.
Philippines - Taxes on Distilled
Spirits)
• The EU and the US alleged that the Philippines was imposing
discriminatory excise taxes on imported distilled spirits
(such as whiskey, gin, vodka, and brandy) compared to
domestic distilled spirits produced from local raw materials
(such as sugar cane and palm).
• They claimed that this practice violated the National
Treatment principle under Article III:2 of the General
Agreement on Tariffs and Trade (GATT 1994), which mandates
equal treatment for imported and domestic products in terms
of internal taxation.
• In this particular case, it was determined that alcoholic
beverages (whiskey and brandy, etc.) with different
ingredients were “like products” despite the use of different
ingredients, because no significant difference was observed in
their appearance and taste and they were in a competitive
relationship.
Second sentence of GATT Article III:
2
• The second sentence of Article III: 2 determines the existence of
violations of the national treatment obligation with respect to “a
directly competitive or substitutable product” (competitive
substitutability: when products are in a direct competitive relationship)
(GATT Annex I: Notes and Supplementary Provisions, Ad Article III,
Paragraph 2). In determining “a directly competitive or substitutable
product”, the similarities of the channels of distribution, etc., in
addition to physical properties and uses, etc., are also considered
(Korea, Republic of - Taxes on Alcoholic Beverages).
• To be recognized as violations of the second sentence, the existence of
internal taxation under which products are not similarly taxed and the
amount of differential taxation is not de minimis, as well as the fact
that the measure is applied in a manner that protects domestic
production and violates the principle of Article III: 1, must be proven.
The existence of such protectionist measures is determined not based
on the subjective intentions of the countries concerned but based on
the objective design, revealing structure and architecture (Japan - Taxes
on Alcoholic Beverages).
GATT Article III: 4
• It addresses the difference in treatment between “like products” with
respect to laws, regulations and requirements affecting internal sale,
etc. According to precedent, the following four factors are considered,
as with the first sentence of Article III:2, in determining “like
products” under this clause: (1) the product’s properties, nature and
quality, (2) the product’s end uses, (3) consumer tastes and habits,
and (4) tariff classification (EC - Asbestos).
• In the determination of “like products” in the EC - Asbestos case, the
Panel focused on the physical properties and uses, and determined
that asbestos products and similar products (cellulose and glass
fibres, etc.) were “like products”. The Panel then concluded, based on
the difference in treatment, that the measure was in violation of the
national treatment obligation. The Appellate Body, however, reversed
the Panel’s determination of “like products” because of the difference
in the carcinogenic properties of asbestos and consumer tastes, and
determined that the difference in treatment between asbestos
products and similar products did not violate the national treatment
obligation.
EXCEPTIONS TO GATT ARTICLE III
(NATIONAL TREATMENT PRINCIPLE)
1. Government Procurement GATT Article III: 8(a):-
permits governments to purchase domestic products for
their own use preferentially, making government
procurement an exception to the national treatment
principle. This exception exists because many GATT
contracting parties were unwilling to change the
preferential treatment they gave to domestic products in
government procurement
Subsidies to Domestic Producers
GATT Article III: 8(b)
• It allows for the payment of subsidies exclusively to domestic
producers as an exception to the national treatment
principle. The reason for this exception is that subsidies are
recognized to be an effective policy tool and are basically
within the latitude of domestic policy authorities.
• However, to be within the exception provided by Article III:
8(b) subsidies need to be granted directly to domestic
producers, and, according to precedent, subsidies granted to
consumers for purchasing domestic products and tax
reduction measures are not within the scope of the
exception. Furthermore, because subsidies may have a
negative effect on trade, the Agreement on Subsidies and
Countervailing Measures imposes strict disciplines on their
use.
Exceptions for Members in the Early Stages
of Development (GATT Article XVIII: C)
• Members in the early stages of development can raise their
standard of living by promoting the establishment of infant
industries. This effort may require certain government
support, and the goal of establishing the industry may not
be realistically attainable within the confines of the GATT.
• In such cases, countries can invoke the provisions of GATT
Article XVIII: C to notify WTO Members and initiate
consultations. After consultations are completed and
subject to certain restrictions, the developing country is
then allowed to take measures that are inconsistent with
GATT provisions, excluding Articles I, II and XIII.
Other Exceptions to National
Treatment
• Exceptions peculiar to national treatment include the
exception on screen quotas for cinematographic films
under Article III: 10 and Article IV. The provisions of
GATT Article XX on general exceptions (e.g., measures
necessary to protect public morals, etc.), Article XXI on
security exceptions and WTO Article IX on waivers also
apply to the national treatment rule (For further
details, see Chapter 1 “Most-Favoured-Nation
Treatment Principle”).
Korea - Measures Affecting Imports of Fresh,
Chilled and Frozen Beef (DS161, 169)
• In the Republic of Korea, imported beef can only be sold in
specialized imported-beef shops, and large-scale distributors
must provide a separate sales area for imported beef. In
addition, the dual retail system, which requires stores selling
imported beef to display a "Specialized Imported Beef Store"
sign to distinguish them from domestic meat sellers, is in
place. The United States, Canada and New Zealand claimed
that the regulations were in violation of GATT Article III: 4.
• The Appellate Body then found that imported beef was
accorded less favourable treatment than domestic beef with
respect to the conditions of competition in the Korean
market, and concluded that the system was in violation of
GATT Article III: 4.
• The 1958 Panel Report on “Italian Discrimination against
Imported Agricultural Machinery,” which examined an
Italian law providing special credit terms for the purchase
of agricultural machinery produced in Italy, notes that
the Panel examined the argument of Italy that “the
General Agreement was a trade agreement and its scope
was limited to measures governing trade … the
commitment undertaken by the CONTRACTING PARTIES
under [Article III:4] was limited to qualitative and
quantitative regulations to which goods were subjected,
with respect to their sale or purchase on the domestic
market.”
• The Panel found as follows. “The Panel … noted that if
the Italian contention were correct, and if the scope of
Article III were limited in the way the Italian delegation
suggested to a specific type of law and regulations, the
value of the bindings under Article II of the Agreement
and of the general rules of non-discrimination as
between imported and domestic products could be
easily evaded.
• “The Panel recognized … that it was not the intention of the
General Agreement to limit the right of a contracting party to
adopt measures which appeared to it necessary to foster its
economic development or to protect a domestic industry,
provided that such measures were permitted by the General
Agreement. The GATT offered a number of possibilities to achieve
these purposes through tariff measures or otherwise. The Panel
did not appreciate why the extension of the credit facilities in
question to the purchasers of imported tractors as well as
domestically produced tractors would detract from the
attainment of the objectives of the Law, which aimed at
stimulating the purchase of tractors mainly by small farmers and
co-operatives in the interests of economic development. If, on the
other hand, the objective of the Law, although not specifically
stated in the text thereof, were to protect the Italian agricultural
machinery industry, the Panel considered that such protection
should be given in ways permissible under the General
Agreement rather than by the extension of credit exclusively for
purchases of domestically produced agricultural machinery”.
 MFN in GATT
• The Most-Favoured-Nation (MFN) principle exists under both
the General Agreement on Tariffs and Trade (GATT) and
the World Trade Organization (WTO), but their scope and
application differ slightly.
• MFN under GATT:
• Article I of the GATT 1947 deals with MFN treatment. It is
relatively short and straightforward, focusing primarily on
trade in goods.
• Scope: The MFN principle under GATT requires members to
treat all other members equally in matters related to trade
in goods, ensuring that any trade advantage granted to
one member must be extended to all members.
•
MFN under WTO

• The WTO MFN principle applies more broadly than under

GATT, as the WTO covers not only trade in goods (via
GATT) but also services (under the General Agreement on
Trade in Services, GATS) and intellectual property (under
the Agreement on Trade-Related Aspects of Intellectual
Property Rights, TRIPS). As a result, the MFN principle's
application is more extensive, which contributes to longer
and more detailed provisions across multiple agreements.
• Scope: WTO MFN applies to all three pillars—goods,
services, and intellectual property. This broadens the reach
of MFN beyond just trade in goods, encompassing other
areas of global trade that were not covered under GATT
alone.
•
NT under GATT
•
• The National Treatment (NT) principle, like the Most-
Favoured-Nation (MFN) principle, exists under both the
General Agreement on Tariffs and Trade (GATT) and the
World Trade Organization (WTO), but there are
differences in their application and scope.
•
National Treatment (NT) under GATT

• Focus: GATT Article III (1947) sets out the National Treatment
obligation, which requires that once goods have entered a country’s
market, imported products must be treated no less favourably than
like domestic products. The idea is to prevent discrimination against
foreign products after they clear customs.
• Application:
• Goods: National Treatment under GATT applies specifically to trade in
goods. It ensures that internal taxes, charges, regulations, and other
domestic laws apply equally to imported goods and domestically
produced goods once the imports have entered the domestic market.
• Tariffs vs. Internal Measures: GATT recognizes that countries may
impose tariffs at the border, but once the goods pass the border,
imported goods must not face higher internal taxes, discriminatory
regulations, or other obstacles relative to domestic products. For
instance, an imported car cannot be taxed more heavily than a similar
locally produced car after it enters the market.
• Exceptions: GATT allows some flexibility with exceptions, such as for
public morals, health, and safety, which might justify different treatment
of imported goods, as outlined in Article XX (General Exceptions).
•
National Treatment (NT) under WTO

• Broader Scope: Under the WTO, the NT principle extends

beyond trade in goods to cover services and intellectual
property rights. This is a key difference from the GATT
framework, where NT was primarily focused on goods.
• GATS (General Agreement on Trade in Services): Under the
WTO, the NT principle applies to services under GATS (Article XVII).
This means that a WTO member cannot discriminate between
domestic and foreign service suppliers in sectors where it has
made commitments. For example, if a country has agreed to allow
foreign financial services providers into its market, they must be
treated no less favorably than domestic providers.
• TRIPS (Trade-Related Aspects of Intellectual Property
Rights): The NT principle also applies to intellectual property
rights under TRIPS (Article 3). WTO members must ensure that the
intellectual property rights of foreign nationals receive the same
protection as those of domestic nationals. For example, a foreign
inventor’s patent must be treated with the same level of protection
as a domestic inventor’s patent.
•
Key Differences Between NT under GATT and
WTO

Scope:
1.GATT: The NT obligation under GATT is restricted to trade
in goods, ensuring non-discriminatory treatment of
imported goods vis-à-vis domestic goods.
2.WTO: Under the WTO, NT covers goods (GATT), services
(GATS), and intellectual property rights (TRIPS),
providing a broader application of the principle across
different sectors.
•
• Legal Framework:
• GATT: National Treatment under GATT is confined to
Article III. The article outlines different aspects, such as
internal taxes (Article III:2) and internal regulations
(Article III:4), aimed at ensuring equality between
imported and domestic goods.
• WTO: The WTO’s NT obligation is spread across multiple
agreements. It appears in:
• Article III of GATT 1994 (trade in goods)
• Article XVII of GATS (services)
• Article 3 of TRIPS (intellectual property rights)
•
• Services and Intellectual Property:
• GATT: There is no provision for National Treatment
related to services or intellectual property under
GATT. These areas were outside the scope of the GATT
framework.
• WTO: The NT obligation under the WTO covers these
additional areas:
• In services, NT ensures that foreign service providers are
not treated worse than domestic providers.
• In intellectual property, NT ensures that the protection of
IP rights (e.g., patents, trademarks, copyrights) for foreign
nationals is equivalent to that for domestic nationals.
•