Assignment

COURSEWORK ASSIGNMENT

INTERNATIONAL ECONOMIC LAW

BA (Hons) Law and Management

Lecturer: MRS N JEETAH

Learner: Mr M. R. ELLYEBACCUS

OU LEARNER ID NO: 201903232

Year 1/ Semester 2

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Table of Contents
1.0 Introduction ..................................................................................................................... 4
2.0 Relevance of Most Favoured Nation Treatment ............................................................. 4
2.1 Provision of non-discriminatory treatment .......................................................................... 4
2.1.1 Trade Advantage ............................................................................................................... 5
2.1.1 Non-Discriminatory Administration of Quantitative Restrictions ................................... 5
2.2 ADVANTAGE GRANTED ‘IMMEDIATELY AND UNCONDITIONALLY: ............... 6
3.0 Economic Benefits ............................................................................................................... 7
4.0 Exceptions to Most favoured Nation Rule ........................................................................... 8
4.1 Regional integration ............................................................................................................. 8
4.2 The Generalised System of Preferences: ............................................................................. 8
5.0 MFN Provisions outside GATT. .......................................................................................... 8
6.0 MFN Treatment under GATS .............................................................................................. 9
6.1 Exemption to GATS: ......................................................................................................... 11
8.0 Conclusion ......................................................................................................................... 13
9.0 Bibligraphy ........................................................................................................................ 14

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Assignment Question

The Most-favoured-nation (MFN) Treatment is one of the core principles of the World
Trade Organisation (WTO). Yet, the very architecture of the WTO makes room for
significant exceptions to that principle. Discuss and critically assess the relevance of the
MFN Treatment in the operation of the WTO.

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1.0 Introduction

The Most-Favoured-Nation” (“MFN”) treatment requires Members to accord the

most favourable tariff and regulatory treatment given to the product of any one Member
at the time of import or export of “like products” to all other Members. This is a
Founding principle of the World Trade Organisation (WTO), founded on 1st January 1995.
The MFN treatment is also a priority in the General Agreement on Trade in Services
(“GATS”) (Article 2) and the Agreement on Trade-Related Aspects of Intellectual Property
Rights (“TRIPS”) (Article 4), although in each agreement the principle is handled slightly
differently. Together, those three agreements cover all three main areas of trade handled by
the WTO. However, GATT provides for exceptions to the MFN rule of the WTO. These
purpose of this paper is to assess the relevance the MFN clause.

2.0 Relevance of Most Favoured Nation Treatment

2.1 Provision of non-discriminatory treatment

The essence of MFN treatment is non-discriminatory treatment by providing the same
conditions given to one Member to other Members. In the context of trade, it is a principle
that prohibits different treatment given to the same products depending on the country of
origin. The Most Favored Nation principle is set out under many agreements such as trade in
goods under the General Agreement on Tariff and Trade (GATT) and trade in services under
the General Agreement on Trade in Service (GATS).The main purpose of these agreements is
to reduce the barriers to international trade, services, and service suppliers, through the
reduction of tariffs, quotas, and subsidies. Therefore, MFN means that every time a country
lowers a trade barrier or opens up a market, it has to do so for the same goods or services
from all its trading partners — whether rich or poor, weak or strong. Hence, this provides
equal chances of trading for everyone. As stated by the article 1of GATT 1994, there should
be no discrimination between like products originating from different countries. However, the
rule applies only to “like” and products that are not “like” may treated differently. The
determination of the WTO panel in the case Spain –Unroasted Coffee1, the Panel had to

1
Spain –Tariff treatment of unroasted coffee (L/5135 - 28S/102)

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decide whether various types of unroasted coffee (‘Colombian mild’, ‘other mild’, ‘unwashed
Arabica’, ‘Robusta’ and ‘other’) should be considered like products’ within the meaning of
Article 1. It therefore urged Spain to apply MFN treatment to all types of coffee whilst the
latter was waiving tax of Columbia Mild coffee and imposing a 7% tax on all other types.
Hence, the interest of all countries are protected against favouritism and improves
cooperation and trade amongst nations.

2.1.1 Trade Advantage

That means that all advantages granted with respect Member with respect to customs duties,
custom matters, other charges on imports and exports, internal taxes and internal regulation
affecting the sale, distribution and use of products, by a member of the WTO must equivocal
to other members and non Members of the WTO. If a Member grants an advantage to a non-
Member, the same must granted to all members of WTO. For example in the case of :

Canada – Autos, the Appellate Body usefully clarified the scope of Article I: 1 by ruling:
......the words of Article I:1 refer not to some advantages granted “with
respect to” the subjects that fall within the defined scope of the Article, but to
“any advantage”; not to some products, but to “any product”; and not to like
products from some other Members, but to like products originating in or
destined for “all other” Members.

In other words, the MFN treatment obligation requires that any advantage granted by a
Member to any product from or for another country be granted to all like products from or for
all other Members

2.1.1 Non-Discriminatory Administration of Quantitative Restrictions

Members of the WTO are also prohibited from exercising quantitative restrictions on the
importation or the exportation of any product to any other member. As stipulated by article
13 of the GATT ” no prohibitions or restrictions other than duties, taxes or other charges
shall be instituted or maintained by any Member...”.

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The reason for this prohibition is that quantitative restrictions are considered to have a
greater protective effect than tariff measures and are more likely to distort free trade. When a
trading partner uses tariffs to restrict imports, it is still possible to increase exports as long as
foreign products become price competitive enough to overcome the barriers created by the
tariff. When a trading partner uses quantitative restrictions, however, it is impossible to
export in excess of the quota no matter how price competitive foreign products may be. Thus,
quantitative restrictions are considered to have such a distortional effect on trade that their
prohibition is one of the fundamental principles of the GATT.

2.2 ADVANTAGE GRANTED ‘IMMEDIATELY AND UNCONDITIONALLY:

Under the MFN , all members of WTO enjoys the immediate and unconditional advantage
granted by any other member on imports from any country. Hence once a member has
granted an advantage to imports from a country, it cannot make that advantage conditional
upon other members.

The granting of an advantage may not be conditional on whether a Member has certain
characteristics, has certain legislation or undertakes certain action.

In the Belgium Family Allowances case2, for instance, a dispute of 1952, concerning a
Belgian law providing for an exemption from a levy on products purchased from countries
which had a system of family allowances similar to that of Belgium, the Panel held that the
Belgian law at issue:

“… introduced a discrimination between countries having a given system of

family allowances and those which had a different system or no system at all,
and made the granting of the exemption dependent on certain conditions. The
Panel concluded that the advantage – the exemption from a levy was not
granted ‘unconditionally’ and that the Belgian law was, therefore,
inconsistent with the MFN treatment obligation of Article I: 1.”

2
BELGIAN FAMILY ALLOWANCES (ALLOCATIONS FAMILIALES) Report adopted by the CONTRACTING PARTIES
on 7 November 1952 (G/32 - 1S/59)

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So, all of the above are an extension of the GATT which have the benefits of equality of
treatment and similar conditions applied to all countries in trade be it a member WTO or not
and also ensure non-discrimination between like products.

In the GATT goods are delineated as “like products” by differentiating the level of economic
substitution and competitive nature in the marketplace, and are then categorized and
regulated through a uniform tariff classification. Because all members immediately enjoy the
benefits extended by a country’s lowering of trade barriers, the concept of MFN is an equally
applied concept from the inception to modification of tariffs on goods. In short, it is a living
system that continually adjusts to the lowest common denominator among its members while
trading goods.

3.0 Economic Benefits

So, with all the above principles the MFN has brought several economic benefits also.

For instance, the non discrimination principle makes it possible for countries to import from
the most efficient supplier, in accordance with the principle of comparative advantage and
hence to an improved efficiency in world economy.

Moreover, the immediate and unconditional treatment granted to all countries and equivocal
application of restrictions, increases the risk of trade restrictions and therefore raised cost and
consequently raises predictability and increases trade and invest.

3.1 Stabilisation of the Multilateral Trading System

The Non-discrimination principle requires that favourable treatment granted to one country
be immediately and unconditionally granted to all other countries. Trade restrictions, too,
must be applied equally. This increases the risk of trade restrictions becoming a political
issue, i.e., it raises the costs and consequences of doing so, and therefore tends to support the
liberalized status quo. By stabilising the free trade system in this manner, the principle
increases predictability and therefore increases trade and investment.

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It also reduces cost of maintaining the multilateral trading system as equal treatment imposed
by the system acts as a unifying force and reduces disadvantageous treatment. Consequently,
reduces cost of maintaining a free trade system.

4.0 Exceptions to Most favoured Nation Rule

However, there is also exceptions to the MFN treatment under the GATT. These exceptions
have reduced the scope of the MFN. These exceptions are Regional integration and
Generalised System of Preferences (GSP).

4.1 Regional integration

Regional integration through customs unions or free trade areas liberalizes trade among
countries within the regions, while maintaining trade barriers with countries outside the
region or regions. Regional integration therefore may lead to results that are contrary to the
MFN principle because countries inside and outside the region are treated differently. Thus,
countries outside the region could be disadvantaged.

4.2 The Generalised System of Preferences:

The Generalized System of Preferences (GSP) is a system that grants products originating in
developing countries lower tariff rates than those normally enjoyed under MFN status. GSP is
a special measure granted to developing countries in order to increase their export earnings
and to promote their development. This is contrary to the non-discrimination principle of the
MFN.

5.0 MFN Provisions outside GATT.

The idea of MFN treatment has been extended to the areas of trade in services and intellectual
property by the WTO Agreement, although with certain exemptions. The second Article of
the General Agreement on Trade in Services (GATS) provides for MFN treatment for
services and service providers; Whilst article 4 of the Agreement on Trade-Related Aspects
of Intellectual Property Rights (TRIPS) contains the same for the protection of intellectual
property rights. The GATS affords exceptions where Members may waive their obligation to
provide MFN treatment for specific measures in specific fields by listing the measure in the

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Annex on Article II Exemptions. The TRIPS Agreement also provides for exemptions
regarding measures based on existing treaties in the area of intellectual property. The main
features of the GATS and TRIPS are analyzed in the following sections.

6.0 MFN Treatment under GATS

The main purpose of introducing the GATS was meant to cover the services sector which had
been left out by the GATT 1947. Therefore, in the GATS the same principles of the GATT
principles is applied to the services for its liberalisation.3 The meaning of the MFN treatment
principle in the GATS is in the Articles II of the Agreement.4 It prohibits discrimination
between like services and service providers from various countries.5 Same as all WTO
agreements, the GATS intend to achieve free trade in services by reducing the regulatory
barriers on services that cross borders.6 Moreover, the scope of the MFN principle extends to
all services, including those not covered by the market access commitments, being the most
striking comparison between the GATT and the GATS.7

It can argued that the MFN principle in the services trade also serves to protect the dead-
weight costs associated with trade diversion that may be as a result of non-efficient services
suppliers who are given preferential market treatment resulting in unequal market access.8
Therefore, what results of this structure is a free-rider problem that defines strategic
positioning during negotiations.9

Since the GATS applies to measures by Member States effecting trade in services, measures
of all levels of government are covered, as well as in non-governmental bodies taken in the

3
. Peter Van Den Bossche, Supra Note 10 page 334.
4
. GATS 1994, Article II
5
. GATS 1994, Article II
6
. David Collins, “Canada’s Prohibition of Automated Bank Machine Withdrawal Charges as a Violation of the
WTO GATS” Manchester Journal of International Economic Law (2009) Vol.4, No.3 page 43
7
. GATS 1994, Article XVI
8
. Joel Trachtman, Supra Note 12, page 5.
9
. EC- Bananas III, Supra Note 14

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exercise of powers delegated to them by such bodies.10 Moreover, trade in services refers to
four modes of supply of services which are: (i) from the territory of one Member State into
11
the territory of another Member State (cross-border trade); (ii) in the territory of one
Member State to the service consumer of another Member State (consumption abroad); (iii)
by the service supplier of one Member State through the presence of natural persons of that
Member State in the territory of another Member State; (iv) by the service supplier of one
Member State through commercial presence in the territory of another Member. 12 All
services fall within the scope of the GATS, with the exception of services supplied in the
exercise of governmental authority and certain air transport services.13

“The first issue relating to the application of the GATS is said to have arose in the context
of Canada-Periodicals.14 Canada argued that a tax equal to 80% of the value of all
advertisements contained in so called split-run periodicals15 was a measure affecting trade in
services. Furthermore, Canada argued that the measure could only be reviewed under the
National Treatment obligation of the GATS16 in respect of who no commitments on
advertising services were undertaken. Both the Panel and the Appellate Bodies rejected
Canada’s arguments, determining that the obligations of both agreements are cumulative and
so-exist, rather than the obligations of one Agreement, GATS overriding those of the GATT”.

10
. Eric Leroux, Supra Note 20, page 751.
11
. GATS 1994, Article I (2)
12
. Eric Leroux,”What is a ‘Service Supplied in the Exercise of Governmental Authority’ Under Article I : 3(b) and
(c) of the General Agreement on Trade in Services?” Journal of World Trade (2006) pages 345-385.
13
. Eric Leroux,”What is a ‘Service Supplied in the Exercise of Governmental Authority’ Under Article I : 3(b) and
(c) of the General Agreement on Trade in Services?” Journal of World Trade (2006) pages 345-385
14
. Panel Report, Canada- Certain Measures concerning Periodicals, WT/DS31/R, (30 July 1997), as modified by
the Appellate Body Report, WT/DS31/AB/R, DSR 1997: I
15
. Panel Report, Canada- Certain Measures concerning Periodicals, WT/DS31/R, (30 July 1997), as modified by
the Appellate Body Report, WT/DS31/AB/R, DSR 1997: I

16
. Panel Report, Canada- Certain Measures concerning Periodicals, WT/DS31/R, (30 July 1997), as modified by
the Appellate Body Report, WT/DS31/AB/R, DSR 1997: I

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“Therefore, this laid out the principle for the later determination that the GATT and the
GATS are mutually exclusive and may overlap.17

Moreover, service liberalisation through GATS offers numerous benefits such as better
economic performance, better development as exporters and produces can have access to
world-class services that helps them in developing countries to capitalize on their
competitive strength, whatever the goods and services they are selling. Also, better consumer
saving as liberalisation of services lead to better information and helps to improve the supply
conditions for many products. Although , liberalisation may lead to rise in price of certain
services , like calls, this tends to be outweighed by the price reduction elsewhere.

6.1 Exemption to GATS:

Members are allowed under specific to introduce or maintain measure that contravene their
obligations under the Agreement, including the MFN requirement or specific commitments.
These measure set out in the are article are inter alia:

(1) To protect public morals or maintain public order;

(2) protect human, animal or plant life or health; or

(3) secure compliance with laws or regulations not inconsistent with the -Agreement
including, among others, measures necessary to prevent deceptive or fraudulent
practices.

Moreover, the Annex on Financial Services entitles Members, regardless of other provisions
of the GATS, to take measures for prudential reasons, including for the protection of
investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a
financial service supplier, or to ensure the integrity and stability of the financial system.

17
. Panel Report, Canada- Certain Measures concerning Periodicals, WT/DS31/R, (30 July 1997), as modified by
the Appellate Body Report, WT/DS31/AB/R, DSR 1997: I

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7.0 MOST FAVOURED NATION TREATMENT UNDER TRIPS

The MFN principle requires each Member to treat nationals of all other Members on an
equivalent basis in relation to intellectual property protection. After the Uruguay round
negotiations 1986 -1994, the intellectual property rules was introduced in the multilateral
trading system by the WTO. Also ,more recently on on 14 November 2001, at the WTO
Ministerial Conference held in Doha, the WTO Ministerial Conference adopted Declaration
on the TRIPS Agreement and Public Health.

This was to increase intellectual property right protection as concerned was raised by
negotiators that some countries were indeed granting Intellectual Property Right privileges to
foreign nationals more extensive than the rights granted to their own nationals.

A MFN principle in TRIPS, so that all Members would obtain an equivalent level of
protection when more extensive protection was granted to foreigners. This is stipulated by the
article 184 of TRIPS, which provides:

“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…..”

So, the MFN provision in the TRIPS agreement requires each country to treat the nationals
of all other countries equally for the purposes of intellectual property protection.
Since the coming into force of TRIPS in January 1995 , 17 disputes have been resolved
regarding patent, copyright and enforcement of intellectual property rights. For instance
Japan - Measures Concerning Sound Recordings, complaints by the United States and the
European Union; Pakistan - Patent Protection for Pharmaceutical and Agricultural Chemical

18
https://www.wto.org/english/tratop_e/trips_e/trips_e.htm#WhatAre

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Products, complaint by the United States are among cases which have been disputes which
have been resolved since 1995.

However, the terms such as advantage, favour, privilege or immunity are not well defined in
the article.

Moreover, the article 5 of the TRIPS provides that the obligations under Articles 4 do not
apply to procedures provided in multilateral agreements concluded under the auspices of
WIPO19 relating to the acquisition or maintenance of intellectual property rights; thus if there
is any provision in the TRIPS relating to the non discrimination principle that is inconsistent
with any of these multilateral agreements, the provisions of such multilateral agreement will
prevail. Additionally, , the TRIPS Agreement can provide for exemptions regarding measures
based on existing treaties in the area of intellectual property.

8.0 Conclusion

In light of the above, it can deducted that MFN principle is at a mirage, and its effectiveness
is declining by the creation of other multilateral trading systems like the MINT, E7, BRICS
among others. Also, the issue of free riding has let drop the confidence the industrialized
countries once reposed in the non-discrimination principle. However, eliminating the “free
riding” issue has showed to be a difficult task and this has led to the creation of various Free
Trade Agreements which were mostly made in flagrant abuse of the requirement of
prevailing International Trade Instruments.

Unfortunately, in reality WTO which is supposed to guarantee compliance with the

provisions of these Trade Instruments has failed in its purpose. Therefore, it is high time that
the WTO lived up to its responsibilities, by implementing effecting checks in place to
guarantee strict compliance. On the other hand, in the absence of a defacto application of the
principle, it is suggested that the current application of the principle is forsaken for free

19
World Intellectual Property Organization

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multilateral trade agreement so as to have a clear definition of the exact nature of the dealings
between parties.

9.0 Bibliography

1. Alexander, K. and Andenas, M. (2008). The World Trade Organization and trade in
services. Leiden: Martinus Nijhoff Publishers.

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2. Analysisgroup.com. (2019). [online] Available at:

https://www.analysisgroup.com/globalassets/content/insights/publishing/samuelson_mfn_
springaba_2012.pdf [Accessed 17 Sep. 2019].
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Under EU Competition Law. [online] Papers.ssrn.com. Available at:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3245642 [Accessed 16 Sep. 2019].
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.ist.psu.edu. (2019). [online] Available at: [Accessed 17 Sep. 2019].
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http://www.fao.org/3/y2732e08.htm [Accessed 16 Sep. 2019].
7. Federico Ortino, ‘The principle of non-discrimination and its exceptions in GATS:
Selected Legal Issues’
8. Full Fact. (2019). An introduction to the World Trade Organisation. [online] Available at:
https://fullfact.org/europe/introduction-world-trade-organisation/ [Accessed 16 Sep.
2019].
9. Legal.un.org. (2019). [online] Available at:
http://legal.un.org/ilc/reports/2015/english/annex.pdf [Accessed 16 Sep. 2019].
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https://www.meti.go.jp/english/report/downloadfiles/gCT0212e.pdf [Accessed 17 Sep.
2019].
11. Slideshare.net. (2019). A CRITICAL APPRAISAL ON PERFORMANCE OF WTO.
[online] Available at: https://www.slideshare.net/soumeetsarkar/eco-project-30132854
[Accessed 16 Sep. 2019].
12. Teksten, R. (2000). A Comparative Analysis of GATS and GATT: A Trade in Services
Departure from GATT’s MFN Principle and the Affect on National Treatment and
Market Access. SSRN Electronic Journal.

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13. Wto.org. (2019). [online] Available at:

https://www.wto.org/english/tratop_e/dispu_e/gatt_e/80coffee.pdf [Accessed 19 Sep.
2019].
14. Wto.org. (2019). WTO | Services - The GATS: objectives, coverage and disciplines.
[online] Available at: https://www.wto.org/english/tratop_e/serv_e/gatsqa_e.htm
[Accessed 19 Sep. 2019].
15. Wto.org. (2019). WTO | Understanding the WTO - principles of the trading system.
[online] Available at: https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm
[Accessed 16 Sep. 2019].
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ploring_Possibilities_of_Alternative_Interpretation [Accessed 19 Sep. 2019].

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