The Most Favoured Nation (MFN) is a fundamental concept and principle in international economic relations, primarily in trade and investment, which mandates non-discrimination among trading partners. The core idea is that a country must treat all its MFN partners equally, meaning any trade advantage granted to one country must be extended immediately and unconditionally to all other countries with MFN status. For example, if Country A lowers the tariff on steel imports from Country B, it must automatically apply that same lower tariff to steel imports from all other MFN partners, such as Country C.
The MFN principle has historical roots dating back to the 12th century, but it became a central pillar of the modern multilateral trading system after World War II. It was formally enshrined in Article I of the General Agreement on Tariffs and Trade (GATT) in 1947, which aimed to solve the problem of protectionist trade blocs and discriminatory practices that were believed to have contributed to the global depression and World War II. The GATT's successor, the World Trade Organization (WTO), established in 1995, made MFN a core rule for its members, requiring them to grant MFN status to each other.
The mechanism works through the obligation in GATT Article I:1 for goods and GATS Article II for services, which requires WTO members to accord treatment "no less favourable" than that given to any other country. This ensures that all WTO members are, in effect, treated as the "most favoured". The MFN principle is closely connected to the National Treatment principle, which requires that once foreign goods enter a country, they must be treated the same as domestic products. Key exceptions to MFN include preferential treatment for developing countries under the Enabling Clause of 1979 and the formation of Customs Unions and Free Trade Areas under GATT Article XXIV. India, as a WTO member, automatically extends MFN status for goods to most other member countries. While the principle itself has remained constant, its application has expanded under the WTO to include services and intellectual property rights.