Most favoured nation

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. 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 being implemented was in the aftermath of the First Opium War between Great Britain and China 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. The World Trade Organization requires members to grant one another most favoured nation status.

Most favoured nation relationships contrast with reciprocal relationships, since in reciprocal relationships a particular privilege granted by one party only extends to other parties who reciprocate that privilege, rather than to all parties with which it has a most favoured nation agreement.

Exceptions

GATT members recognized in principle that the most favoured nation rule should be relaxed to accommodate the needs of developing countries, and the UN Conference on Trade and Development (est. 1964) has sought to extend preferential treatment to the exports of the developing countries.

Another challenge to the most favoured nation principle has been posed by regional trading groups such as the European Union, which have lowered or eliminated tariffs among the members while maintaining tariff walls between member nations and the rest of the world.

In the 1990s continued most favoured nation status for the People's Republic of China sparked U.S. controversy because of its sales of sensitive military technology and its use of prison labor, and its most favoured nation status was only made permanent in 2000. All of the former Soviet states, including Russia, were granted most favoured nation status in 1992.

In the United States

In the United States, "most favored nation status" has been renamed Normal Trade Relations (NTR) in 1998 as all but a handful of countries had this status already, making it a misnomer. (The impetus for the change in terminology came from irritation voiced by some Americans that various totalitarian governments around the world enjoyed being a "most favored nation" of the United States.)

The ideas behind MFN policies can be first seen in US foreign policy during the opening of Japan in the mid to late 1850's, when they were included as a clause in the Commercial Treaty of 1858, which signaled the opening of the Japanese market.

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