Chapter II: The Most-Favoured Nation Treatment
2.1 The Inception of Fair Multilateral Trading System
2.1.3 The Most-Favoured Nation (MFN) Treatment
Usually trade agreements “[facilitate] diversity and [allow] nations to express their own preferences by minimizing constraints on domestic
Oxford, p. 5.
128 Ibid., p. 6.
129 Narlikar, Amrita, (2005), “the World Trade Organization: A Very Short Introduction,” p. 21.
130 Ibid., p. 20.
131 Ibid., pp. 20-21.
132 Matsushita, M. et al (2006) “The World Trade Organization: Law, Practice, and Policy,” (2nd Edition), Oxford, p. 6.
133 Ibid. According to Narlikar, Amrita, (2005), “the World Trade Organization: A Very Short Introduction,” p. 22., when the Marrakesh Agreement concluded the Uruguay Round of Multilateral Trade Negotiations in 1994, the WTO came into existence on 1 January 1995, with a membership of 128 countries.
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policies”134 under the belief that ‘harmonization’ “brings greater benefits:
uniformity, similarity of treatment, and economy in information costs.”135 Learning the significance of world peace and global prosperity based upon non-discrimination and cooperation, this ideal and liberalized means of harmonization is also well politicized and oriented ambitiously in the Bretton Woods Conference in 1944136, the United States at the very birth of expected post-war era, deriving the global cooperative “effort to construct an international economic order capable of serving the two overriding goals of world peace and the general welfare of nations.” 137 For the further information, here is the reason for establishing the WTO from the Preamble to the WTO Agreement, which no other sources could ever states any better:
Recognizing that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means of doing so in a manner consistent with their respective needs and concerns at different levels of economic development,
Recognizing further that there is need for positive efforts
134 Devereaux, Charan et al. (2006) “Case Studies in US Trade Negotiation Vol. 1: Making the Rules,”
p. 10.
135 Ibid.
136 Matsushita, M. et al (2006) “The World Trade Organization: Law, Practice, and Policy,” (2nd Edition), Oxford, p. 1.
137 Xu, Yi-Chong and Weller, Patrick Moray, “The Governance of World Trade: International Civil Servants and the GATT/WTO,” p. 62.
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designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development […]138
In achieving such objectives, “[t]he importance of the MFN treatment obligation to the multilateral trading system is undisputed.”139 It “has been both central and essential to assuring the success of a global rules-based system for trade in goods.”140 In spite of its harmonization-oriented free nature and the ironic failure of establishing the ITO, therefore, “[t]he traditional approach of the GATT (General Agreements on Tariffs and Trade) [is] to [strongly] require [and has no sign of yield at all] that nations”141 to
“treat all GATT members equally – commonly referred to as MFN treatment[.]”142 Along with the policy of national treatment (hereinafter referred to as NT), only when the members “[respect] this principle, [they remain] free to implement any domestic policies or rules they [desire]”143
“[A]lthough members [are] encouraged to adopt [such] international standards, they could set their own so long as those standards [are] applied transparently, [are] not discriminatory, and [erect] no unnecessary obstacles to trade.”144 The principle of non-discrimination, usually represented and known as MFN
138 World Trade Organization, the Legal Text, p. 4.
139 Van Den Bossche, Peter (2008), “The Law and Policy of the World Trade Organization,” (2nd Edition), Cambridge University Press, p. 323.
140 Ibid.
141 Devereaux, Charan et al. (2006) “Case Studies in US Trade Negotiation Vol. 1: Making the Rules,”
p. 10.
142 Ibid.
143 Ibid.
144 Ibid.
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and NT clauses, carries such significance and effectiveness as one refers to it as “the cornerstone of the GATT,”145 “a key concept in WTO law and policy”146 and finally “as one of the two main means by which the objectives of the WTO may be attained.”147
The MFN obligation, given the full authority of the fundamental concept of the organization, is daintily inscribed in the true beginning of the GATT. Article 1.1 of Part I, known as ‘General Most-Favoured-Nation Treatment’ of GATT 1947 and is read as follows. Indeed, it “is the first Article of the General Agreement on Tariffs and Trade (GATT)”148:
1. With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.149
Though “[o]ver the years, because of the emergence of legal and not
145 Trebilcock, Michael et al (2013), “The Regulation of International Trade,” (4th Edition), Routledge, p. 26.
146 Van Den Bossche, Peter (2008), “The Law and Policy of the World Trade Organization,” (2nd Edition), Cambridge University Press, p. 308.
147 Ibid.
148 Horn, Henrik and Petros C. Mavroidis (2001), “Economic and legal aspects of the Most-Favored- Nation clause,” European Journal of Political Economy Vol. 17, p. 233.
149 World Trade Organization, the Legal Text, p. 424.
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so legal exceptions, MFN has lost much of its original scope,”150 it still is very powerful and influential. It “is a legal obligation and not merely a negotiation technique”151 with its reputation “as a carrot to attract members in the institution”152 and its “historical underpinnings.”153 In sum, the MFN is the most fundamental principle and spirit of the WTO, which a Member country can never detour or expect an exception.
It is also true, however, that due to “the proliferation of customs unions, free trade agreements and other preferential arrangements in the last fifteen years has led to a situation in which much of world trade is not conducted in accordance with the MFN treatment obligation.”154 This further is expanded as a solution for this thesis in Chapter 2.3.3.
The excerpted report by the Consultative Board to the Director- General Supachai Panitchpakdi well and explicitly describes the current status of MFN and the public understandings:
[N]early five decades after the founding of the GATT, MFN is no longer the rule; it is almost the exception. Certainly, much trade between the major economies is still conducted on an MFN basis.
However, what has been termed the ‘spaghetti bowl’ of customs
150 Matsushita, M. et al (2006) “The World Trade Organization: Law, Practice, and Policy,” (2nd Edition), Oxford, p. 205.
151 Ibid.
152 Ibid., p. 204
153 Ibid., p. 204: It is written in the context for the further understanding of MFN’s historical background.
It is explained that “Hudec, for example, makes the point that in medieval times the city of Mantua, Italy obtained from the Holy Roman Emperor the promise that it would always benefit from any privilege granted by the Emperor to [‘]whatsoever other town.[’] Jackson notes that the term as such appears for the first time at the end of the 17th century.”
154 Van Den Bossche, Peter (2008), “The Law and Policy of the World Trade Organization,” (2nd Edition), Cambridge University Press, p. 323.
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unions, common markets, regional and bilateral free trade areas, preferences and an endless assortment of miscellaneous trade deals has almost reached the point where MFN treatment is exceptional treatment.155
However, the MFN as the cornerstone of the organization, still is found in many other Agreements that are in SPS (Article 2.3)156, TBT (Article 2.1)157, GATS (Article 2)158, and TRIPS (Article 4).159
155 Van Den Bossche, Peter (2008), “The Law and Policy of the World Trade Organization,” (2nd Edition), Cambridge University Press, pp. 323-324
156 SPS Agreement, Article 2.3: Members shall ensure that their sanitary and phytosanitary measures do not arbitrarily or unjustifiably discriminate between Members where identical or similar conditions prevail, including between their own territory and that of other Members. Sanitary and phytosanitary measures shall not be applied in a manner which would constitute a disguised restriction on international trade.
157 TBT Agreement, Article 2.1: Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country.
158 GATS Agreement, Article II:
Article II: Most-Favoured-Nation Treatment
1. With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country.
2. A Member may maintain a measure inconsistent with paragraph 1 provided that such a measure is listed in, and meets the conditions of, the Annex on Article II Exemptions.
3. The provisions of this Agreement shall not be so construed as to prevent any Member from conferring or according advantages to adjacent countries in order to facilitate exchanges limited to contiguous frontier zones of services that are both locally produced and consumed.
159 TRIPS Agreement, Article 4:
Article 4: Most-Favoured-Nation Treatment
With regard to the protection of intellectual property, any advantage, favour, privilege or immunity granted by a Member to the nationals of any other country shall be accorded immediately and unconditionally to the nationals of all other Members. Exempted from this obligation are any advantage, favour, privilege or immunity accorded by a Member:
(a) deriving from international agreements on judicial assistance or law enforcement of a general nature and not particularly confined to the protection of intellectual property;
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