The Most-Favoured-Nation (MFN) principle is a fundamental concept and provision in international economic relations, primarily serving as a cornerstone of the multilateral trading system. It is a rule of non-discrimination, requiring a country to grant the same trade advantages to all its MFN partners as it grants to any third country.
The concept's origins trace back to the 11th century, with the phrase appearing by the end of the 17th century. It became a key mechanism to solve the problem of selective, bilateral trade concessions and the restrictive nature of mercantilism. The principle was officially endorsed in the General Agreement on Tariffs and Trade (GATT) in 1947.
The mechanism is codified in Article I of the GATT 1994, which mandates that any advantage, favour, privilege, or immunity granted to one member must be accorded immediately and unconditionally to all other members. For instance, if a country lowers a tariff on a product for one trading partner, it must extend that same lower tariff rate to all other MFN partners.
MFN is a core pillar of the World Trade Organization (WTO), which succeeded GATT in 1995. It is closely linked to the principle of National Treatment (Article III GATT), which prohibits discrimination against foreign products once they have entered the domestic market. Exceptions to MFN include preferential treatment for developing countries and the formation of Free Trade Agreements (FTAs) or customs unions.
While the core principle remains, its unconditional application has been recently challenged, with some countries imposing exceptional tariffs higher than their bound MFN rates. Furthermore, the term has been used in a different context in the US for drug pricing policies, which link US drug prices to the lowest prices paid in other developed nations.