1. International Economic Law Most Favoured Nation Clause

2. Article I GATT (GATS Article II) Non discrimination provision: It forbids Members to discriminate between like products originating from other Members No party of a trade agt treated worse than any other state The essence of the non-discrimination obligations is that like products should be treated equally, irrespective of their origin.

3. Article I:1: “With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation,

4. and with respect to all matters referred to in paragraphs 2 and 4 of Article III, “ (III.2 internal taxes or other internal charges ) (III.4 laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use ) In sum: the mfn applies to measures at borders and measures within borders

5. Article I any advantage, favour, privilege or immunity granted by any [Member] to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other [Members].1

6. Purpose of MFN The principal purpose of the MFN treatment obligation is: to ensure equality of opportunity to imported goods from, or to exported goods to all WTO Members: to prevent distortions in competition between otherwise competitive goods. To ensure that the market will be better able to find efficient sourcing and production To avoid concession erosion: A and B negotiate concession but the value of concession obtained by A risks being “eroded” by subsequent negotiations between B and C – disincentive to negotiate

7. Concession erosion and terms of trade B offers 10% to A (large country) on x B offers 5% to C on x Consumers of B will turn to C x Part of A x will go to to the world market – price of x will drop – loss of A terms of trade

8. The ordinary meaning of the word “discriminate” is potentially broader than these specific definitions (referring to national treatment and most favoured nation clause). It certainly extends beyond the concept of differential treatment. It is a normative term, pejorative in connotation, referring to results of the unjustified imposition of differentially disadvantageous treatment. Discrimination may arise from explicitly different treatment, sometimes called de jure discrimination, but it may also arise from ostensibly identical treatment which, due to differences in circumstances, produces differentially disadvantageous effects sometimes called “de facto discrimination. The standards by which the justification for differential treatment is measured are a subject of infinite complexity. Discrimination is a term to be avoided whenever more precise standards are available, and, when employed is a term to be interpreted with caution and with care to add no more precision than the concept contains”. Canada Patent Protection of Pharmaceutical Products, WT/DS114/R, 17 marchz 2000

9. Unconditioned mfn clause_ Imports form the more efficient supplier Problem of free riders

10. MFN – TEST of consistency Does the measure at issue confer a trade ‘‘advantage’’ of the kind covered by Article I? Are the products concerned ‘‘like’’ products; is the advantage at issue granted ‘‘immediately and unconditionally’’ to all like products concerned. three dimensions: the type of policy measures (border / domestic) the degree of similarity between the products required for the clause to apply (like), and the origin of the products to be compared (origin neutral)

11. Advantages Granted to whom? MFN treatment obligation not only concerns advantages granted to other WTO Members, but advantages granted to all other countries (including non-WTO Members). If a Member grants an advantage to a non-Member, Article I:1 obliges the Member to grant that advantage also to all WTO Members

12. likeness 1) which characteristics or qualities are important in assessing likeness’’ 2)to what degree or extent must products share qualities or characteristics in order to be ‘‘like products’’; 3)from whose perspective should ‘‘likeness’’ be judged.

13. Likeness 1) likeness Physical characteristics of the products; end-use; tariff regimes of other Members. consumers’’ tastes and habits process or production method ? Competition? (commercial concept): substitutability

14. Japan Alcoholic beverage referring to different meaning of the terms LIKE in the GATT: “The accordion of ‘likeness’ stretches and squeezes in different places as different provisions of the WTO Agreement are applied. The width of the accordion in any one of those places must be determined by the particular provision in which the term ‘like’ is encountered as well as by the context and the circumstances that prevail in any given case to which that provision may apply.”

15. Definition (and likeness/unlikeness) as a form of discrimination? The example of 1904 Germany concession to Switzerland to limit preferences to Swiss cattle: “Large dapple[d] mountain cattle reared at a spot at least 300 meters above sea level and having at least one month’s grazing each year at a spot at least 800 meters above sea level United States subdivided the brandy tariff into two parts — “brandy at more than $9.00 per gallon” and “other brandy” to retaliate against France

16. POSSIBLE INTERPRETATIONS OF THE TERM “UNCONDITIONALLY”: 1) Advantage no conditional on compensation - advantage to imports of other WTO Members NOT conditional upon those other WTO Members ‘‘giving something in return’’ or ‘‘paying’’ for the advantage. (see EC Tariff Preferences – position of the EC – Panel: conditionality in the context of traditional MFN clauses in bilateral treaties may relate to conditions of trade compensation for receiving MFN treatment, the Panel does not consider this to be the full meaning of “unconditionally” under Article I:1, )

17. in fact “in the nineteenth and early twentieth centuries, MFN was often granted conditionally. Instead of granting MFN treatment automatically, a State would grant MFN treatment in exchange for a benefit provided by the other State. In other words, the grant of MFN treatment had to be paid for.”

18. 2) advantage no conditional on any criteria that are not related to the imported product itself (Indonesia autos) -the advantage depended on whether or not PT TPN had made a “deal” with that exporting company to produce that National Car, and is covered by the authorization of June 1996 with specifications that correspond to those of the Kia car produced only in Korea

19. under all these car programmes, customs duty and tax benefits are conditional on achieving a certain local content value for the finished car. The existence of these conditions is inconsistent with the provisions of Article I:1 which provides that tax and customs duty advantages accorded to products of one Member (here on Korean products) be accorded to imported like products from other Members “immediately and unconditionally”.

20. 14.147 For the reasons discussed above: we consider that the June 1996 car programme which introduced discrimination between imports in the allocation of tax and customs duty benefits based on various conditions and other criteria not related to the imports themselves and the February 1996 car programme which also introduce discrimination between imports in the allocation of customs duty benefits based on various conditions and other criteria not related to the imports themselves, are inconsistent with the provisions of Article I of GATT (Indonesia Auto)

21. See also Belgian Family Allowances: Report adopted by the CONTRACTING PARTIES on 7 November 1952 The consistency or otherwise of the system of family allowances in force in the territory of a given contracting party with the requirements of the Belgian law would be irrelevant in this respect, and the Belgian legislation would have to be amended insofar as it 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.

22. EEC – Imports of Beef: Report of the Panel adopted on 10 March 1981 EC-regulation suspension of an import levy conditional (only) on the production of a certificate of authenticity. the regulation was de jure origin neutral. The GATT-Panel found that this regulation was inconsistent with the MFN-obligation of Art. I:1 after it was established that the only certifying agency authorized to produce such a certificate of authenticity was an agency in the USA

23. conditions as permissible “as long as they are imposed in a non- discriminatory manner” (Canada Autos) (conditions possible but they must not be discriminatory) Test of Canada –autos – Panel See paras. 10.18-50

24. 10.22As explained below, we believe that this interpretation of Japan does not accord with the ordinary meaning of the term "unconditionally" in Article I:1 in its context and in light of the object and purpose of Article I:1. In our view, whether an advantage within the meaning of Article I:1 is accorded "unconditionally" cannot be determined independently of an examination of whether it involves discrimination between like products of different countries.

25. 10.24. An advantage can be granted subject to conditions without necessarily implying that it is not accorded "unconditionally" to the like product of other Members. More specifically, the fact that conditions attached to such an advantage are not related to the imported product itself does not necessarily imply that such conditions are discriminatory with respect to the origin of imported products. We therefore do not believe that, as argued by Japan, the word "unconditionally" in Article I:1 must be interpreted to mean that making an advantage conditional on criteria not related to the imported product itself is per se inconsistent with Article I:1, irrespective of whether and how such criteria relate to the origin of the imported products.

26. Does the Canadian Measure involve discrimination? De jure? De facto ? AB:”Neither the words "de jure" nor "de facto" appear in Article I:1. Nevertheless, we observe that Article I:1 does not cover only "in law", or de jure, discrimination. As several GATT panel reports confirmed, Article I:1 covers also "in fact", or de facto, discrimination.Like the Panel, we cannot accept Canada's argument that Article I:1 does not apply to measures which, on their face, are "origin-neutral".

27. Although the measure on its face imposes no FORMAL RESTRICTION on the origin of the imported motor vehicle, …… a motor vehicle imported into Canada is granted the "advantage" of the import duty exemption only if it originates in one of a small number of countries in which an exporter of motor vehicles is affiliated with a manufacturer/importer in Canada that has been designated as eligible to import motor vehicles duty-free under the MVTO 1998 or under an SRO.

28. Colombia – Indicative Prices And Restrictions On Ports Of Entry – report of the Panel WT/DS366/R - April 2009 The Report Confirms the interpretation given in Canada Autos (flexible) but Colombia’s measure facially discriminated against Panama Colombia argued that it was entitled to “condition access to its market on compliance with and respect for [its] laws and regulations” and another Member’s failure to respect those laws permitted Colombia to “deny an advantage to an importer, as the privilege is conditioned on requirements, which, if not respected or met, may be revoked. Panel disagreed.

29. Which interpretation is more convincing? Why? If under Article I conditions are allowed - provided that they are not discriminatory - can one find any reason against the application of conditions? (can they undercut the value of previously negotiated tariffs?)

30. MFN exceptions Regional agreements (preferential agreements establishing a CU or a FTA) GATT Article XXIV provides that regional integration may be allowed as an exception to the Most-Favoured-Nation rule only if certain conditions are met Enabling clause - Decision on "Differential and More Favourable Treatment, Reciprocity, and Fuller Participation of Developing Countries" or the "Enabling Clause.

31. Case-law on Like products Spanish Coffee: in the Spanish Coffee case, Spain introduced in its domestic tariff nomenclature sub-classifications that distinguished between different types of “unroasted” coffee; Spain imposed a tariff of 7% on three of these types while allowing duty-free status to the types “Colombia mild” and “other mild.” Brazil complained that this was a denial of MFN treatment to its coffee exports, because they were “like products” to those being accorded duty-free status..

32. The GATT dispute settlement panel upheld Brazil’s complaint finding that all of the types of coffee in question were “like” since they were converted into blends before being marketed to the consumer, who could not distinguish them as separate commodities. no other GATT member had introduced sub- classifications of the kind employed by Spain in its domestic nomenclature

33. which is the mfnc impact … on trade liberalization? in multilateral trade negotiations? on bargaining structure Consider the externalities and free riding that are often alleged to be associated with negotiations under MFN the role of reciprocity in conjunction with MFN the relationship between MFN and multilateralism.