Internationl Economic Law Essay Example | Topics and Well Written Essays - 2250 words

Internationl Economic Law - Essay Example These trade advantages encompass benefits like larger import quotas or lower tariffs and import duties. A country designated with the MFN status must be treated on an equal platform as any other country that has been awarded the MFN status by the nation granting this special status. The MFN treatment principle is important in the context of the WTO whose members have pledged to award MFN statuses to each other. There are also certain exceptions like designating free trade sectors on a regional basis and providing additional benefits to the developing nations. Under the MFN system stipulated by the WTO, a member nation that grants the most-favoured status to a non-member state for a particular product is obliged to provide the same benefits to other members of the WTO2. Thus, the WTO ensures that trade benefits are provided to all members as well as non-members on an equitable basis. The notion of a Most-Favoured Nation has existed since medieval times where smaller versions of such a greements have existed since the 15th Century. However, the expansion of MFN status in international trade began to develop during the 18th century3. Before the General Agreement on Tariffs and Trade (GATT), the MFN treatment could be found only among Bilateral Investment Treaties (BITs) which indeed aided in liberalizing international trade. MFNs also find mention in the ‘Fourteen points’ laid out by United States (US) President Woodrow Wilson in 1918 which called for the liberalization and equality of trade conditions among nations4. Features of the MFN principle The MFN treatment principle has numerous economic effects that are elaborated below. Advantages to International Trade The most important benefit of the MFN principle is that it allows nations to import goods from the most cost-effective and efficient producer without disrupting the notion of comparative advantage5. For instance, a country can import products from the best supplier from different countries ba sed on cost, quality and efficiency thereby improving its economic efficiency. However this efficiency is distorted if the importing nation imposes a higher tariff on imports from the efficient supplier, prompting the importer to prefer products of the next best supplier (from a different country) at lower tariffs. This results in a trade imbalance which reduces the economic benefit to the importing nation besides disrupting global economic efficiency6. The provision of the MFN status in this context to all the countries implies that the importing country will levy equal tariffs on all exporting nations resulting in the procurement of goods from the most efficient supplier. Thus, the primary objective of the MFN treatment principle is to improve the efficiency of international trade. Free Trade System As mentioned above, the equal treatment of nations based on the MFN treatment principle accords the most liberal business environment that allows WTO member states to cut costs in nego tiation and monitoring trade agreements. In simpler words, the MFN treatment has resulted in the reduction of costs associated with the maintenance and functioning of the free trade system7. Equal treatment for imports from all member countries also means that costs associated with ascertaining the originating port or country are also reduced thereby contributing