IR - One Definition A Day: MFN - Most Favoured Nation

IR - One Definition A Day:

MFN - Most Favoured Nation

This fundamental principle of international trade seeks to establish and advance the principle of equality of treatement and non-discrimination among trading states. The principle may be illustrated by taking a bilateral situation thus: under mfn principles, the parties will extend to each other the same advantages that they have extended to other third parties in the past, or are extending to others concurrently, or intend to extend in the future. Most favoured nation (mfn) principles are typically applied to tariffs and if these principles are applied consistently, they should lead to mutual and balanced tariff reductions.
It is generally agreed that the MFN principle began to be applied to international trade in the eighteenth century, reaching its peak in the last decades of the nineteenth. The First World War and the events thereafter led to the weakening of its application but with the formation of the General Agreement on Tariffs and Trade (GATT) in 1947 a concerted attempt was made to resuscitate these ideas by writing them into the first article of GATT. At the same time GATT allows important exceptions to the mfn principle. Crucially trade blocs, free trade areas and common markets are all except. The emergence of the United Nations Conference on Trade and Developement (UNCTAD) in the 1960s further weakened the mfn principle because the Third World called for a system of positive discrimination in their favour to replace it. This call has been recognized system of preferences between advanced industrial countries (AICS) and the Third World.
The mfn principle remains a testament to those who believed in a liberal, equal, non-discriminator international trading system.

Read more on multilateralism, reciprocity


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IR - One Definition A Day: The General Agreement on Tariffs and Trade (GATT)

IR - One Definition A Day: GATT

The General Agreement on Tariffs and Trade (GATT) was signed by twenty-three states in October 1947. From the outset it was envisaged that the Agreement would be an integral part of the putative International Trade Organisation (ITO) and that the latter would be an equal ranking institution in the Bretton Woods system along with the IMF and World Bank. 

When the draft charter of the ITO was not ratified by USA, GATT become by default the only multilateral agreement covering the issue area of world trade. GATT represents then both a formal international convention and a de facto IGO. The somewhat iterim nature of GATT in this latter role was well demonstrated by the fact that member states were properly referred to as 'contacting parties'. 

Since 1947 GATT sought tocreate and maintain a free trade regime. This was implemented by promoting the principle of tariff reductions trhough multilateral conference diplomacy and by extending the ideas of the most favoured nation and non-discrimination. Exceptions to these ground rules were permitted only in the following circumstances: in states with servere balance of payments difficulties, in customs unions and trade blocs, and where discrimination was intentionally adopted for security purposes, including collective security actions by the UN.

As a forum for trade negotiations GATT promoted what might be termed 'tariff disamament' at a number of bargaining rounds. The most recent and signficant of these were the Kennedy, Tokyo and urguay sessions. Bargaining behaviour at these meetings followed the reciprocity rather than the harmonisation model, as would be expected from parties with often highly conflicting interests and goals. Agreement tended to follow once a consensus on a 'deal' or 'package' emerged. Details were worked out by civil servants, but major initiatives and opening and closing sessions remained the province of ministers and political heads. 

Trade issues became increasingly a stage which GATT shared with other parties in the last quarter of the century. In particular the OECD and UNCTAD represented the interests and perspective of the North and South respectively. Received opinion was coming round to the view that a fresh attempt at something more akin to the erstwhile ITO might be needed to replace the General Agreement. The decision reached at Uruguay to set up the World Trade organisation (WTO) as the natural culmination. 


(Source: wikipedia)


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