The Most Favored Nation (MFN) is a core concept and principle of non-discrimination in international economic relations, primarily institutionalized within the World Trade Organization (WTO) framework. Its origin lies in the need to solve the problem of trade blocs and protectionism that contributed to World War II, leading to its inclusion in the General Agreement on Tariffs and Trade (GATT) in 1947. The principle ensures that a country cannot discriminate among its trading partners.
The mechanism of MFN is codified in Article I:1 of the GATT 1994, which requires a WTO member to extend any "advantage, favour, privilege or immunity" granted to a product from one country to all other WTO members "immediately and unconditionally". This means if India lowers a tariff on a specific imported product for one WTO member, it must automatically apply that same lower tariff to the "like products" of all other members. The principle also applies to services under Article II of the General Agreement on Trade in Services (GATS).
MFN is a cornerstone of the multilateral trading system, connecting directly to the WTO and the principle of National Treatment, which prohibits discrimination against imported goods once they enter the domestic market. Key exceptions to MFN include preferential treatment for developing countries under the Generalized System of Preferences (GSP) and trade concessions made within Free Trade Agreements (FTAs) or Customs Unions.
The MFN principle has recently seen changes in the context of India's tax treaties, which are separate from the WTO trade rules. The MFN clause in the India-Switzerland Double Taxation Avoidance Agreement (DTAA), which was part of a 1994 Protocol, was suspended by Switzerland, effective January 1, 2025. This followed a 2023 Indian Supreme Court ruling (involving Nestle SA and others) which clarified that MFN benefits in DTAAs require explicit notification by the Indian government under the Income Tax Act. Furthermore, India removed the MFN clause from its updated tax treaty with France in February 2026 to reduce disputes and clarify tax rules.