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Most favored nation (MFN) status grants specific trade advantages, such as lower import taxes and higher quotas, to a country. The World Trade Organization (WTO) oversees MFN agreements, which aim to improve trade and diplomatic relations between countries. However, challenges include developing nations struggling to keep up with exports and regional trade configurations. The United States has rebranded MFN status as permanent normal trade relations.
The term most favored nation (MFN) refers to a status bestowed by one country on another to indicate that that particular country will enjoy specific advantages in trade. Typically, this takes the form of lower import taxes, called tariffs, and higher quotas set on imported goods. This means that the county that is given most favored nation status is the same as any other country that receives the status. It is usually given when a country wants to increase trade with another country.
Prior to the creation of the World Trade Organization (WTO) in 1994, most potential trade agreements were mediated by the General Agreement on Tariffs and Trade (GATT). GATT was formed in 1949 after World War II. The nations involved at the time had attempted to negotiate an agreement to create the International Trade Organization (ITO), but had failed. Mediated by the United Nations, the GATT was then formed. The WTO still operates under the main principles of the GATT and is the body now responsible for implementing the MNF agreements.
The main purposes of granting most favored nation status are for diplomatic reasons or to improve trade between two countries. There are many benefits to doing this, not the least of which can be improved relations with a country. Other benefits include ease of calculating taxes, and the same import tariffs and limits are charged to any nation with most favored nation status, so you don’t need to have a different calculation rate. It also parallelizes the market of small countries that may not be able to reach or negotiate better trade deals on their own, as well as prevent any disagreements between different countries from causing retaliation with higher tariffs.
Despite its advantages, most-favoured-nation status has its own challenges and potential disadvantages. One downside is that developing nations may not be able to keep up with exports. Developing countries have been suggested to receive preferential treatment under the GATT, but it has been difficult to regulate. Other potential conflicts have been in the arena of previous disputes or disagreements, such as war, resulting in two nations having substitute reasons not to trade. Some of these issues are treated as exceptions and have been resolved in the form of amendments or repeals of the conflicting doctrine.
Other issues concern regional trade. Some configurations, such as the European Union, have much freer trade with each other than member countries and other nations. A similar situation turned out like the rest of the North American Free Trade Agreement (NAFTA) in the Americas. These issues are typically considered exceptions, but could lead to a different form of commerce in the future. The United States, for example, has already rebranded most-favoured-nation status into permanent normal trade relations, simply because most nations already had the status and the term seemed outdated.
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