MFN Full Form

What is the full form of MFN?

The full form of MFN is Most Favoured Nation. Even though all countries in the world trade with each other, not all of them are benefiting from that trade equally. Most underprivileged countries generally lose out in the race because of a lack of resources and overall capital.

The World Trade Organisation(WTO), which creates the rules and monitors international trade, has created a way so that everyone gains equal benefit from the economic strength of international trade. Today we will be learning about the Most Favoured Nation status or MFN and how it benefits these countries.

This Story also Contains

1. What is the full form of MFN?
2. What is MFN Full Form?
3. History of MFN
4. Benefits of MFN
5. Drawbacks of MFN

What is MFN Full Form?

MFN stands for Most Favoured Nation. It is a term associated with economics, specifically international economics and trade. It is a status that when given to a country means all the other members must provide it with equal trade privileges. These advantages include things like higher import quotas and lower tariffs and taxes.

MFN status is allotted by the World Trade Organisation (WTO) to other members of the organisation. As part of this boon, a country awarded this status shall, by no means, be treated less than any other country which also has MFN status. Therefore, all countries on the MFN list of a country shall be treated equally.

One of the primary principles of Most Favoured Nation status is the reciprocal bilateral relationship. This relationship follows the norms of WTO and GATT (General Agreement on Tariffs and Trade) which were created for fair reciprocity and non-discriminative trade. In a reciprocal bilateral trade relationship, a privilege is extended from one member to another only if this privilege is reciprocated back.

History of MFN

The earliest form of a Most Favoured Nation privilege can be dated back to the 11th century. However, the current form of this status was first found in international politics in the 18th century. This is when the first division between unconditional and conditional MFN status first saw the light of day.

In the early years, two nations could enter into the most favoured nation treaty without any oversight. For example, Spain granted the most favoured nation status to England in 1667 under what was known as the Treaty of Madrid.

However, after World War 2 most favoured nation agreement was granted by all members in play under the General Agreement on Tariffs and Trade (GATT). This agreement is what gave birth to the World Trade Organisation in 1955.

Benefits of MFN

According to experts in international trade trends, the following are some of the benefits of the most favoured nation status.

• Smaller and underdeveloped countries cannot compete with the more advanced countries in the international trade field. The Most Favoured Nation privilege helps a lot of these countries by levelling the playing field for them.

• Most favoured nation privilege makes sure there is an increase in trade creation. This means the country which grants MFN status when it comes to imports will be provided with imports by an efficient supplier if this supplier is a part of the group of MFN.

• MFN helps in domestic matters, specifically when it comes to custom purposes. If all countries give each other the MFN status then it helps in simplifying the import/export process. Applying MFN status to each country should theoretically help eradicate complex rules of origin which help identify the country which must be compensated for the trade of a particular product.

Drawbacks of MFN

While MFN has its benefits, there are some potential drawbacks.

• A tariff peak is when countries, especially developed countries, are charged higher tariffs for the same trade. These hikes are generally seen while purchasing products like fish-based products and clothing,

• Sometimes countries are known to pay part of the production cost of certain companies. This helps companies export at lower costs, overall benefiting their profits. This type of subsidising is frowned upon and may get countries in hot water with the World Trade Organisation.