The Most-Favoured Nation (MFN) is a core concept and principle of non-discrimination in international economic relations and trade law. It mandates that a country must extend any trade advantage, favour, privilege, or immunity granted to one trading partner immediately and unconditionally to all other trading partners. The concept's roots trace back to bilateral trade agreements in the 17th century, such as the Treaty of Madrid (1667) between Spain and England. However, it was codified as a foundational principle of the multilateral trading system after World War II in the General Agreement on Tariffs and Trade (GATT) in 1947, which aimed to prevent the trade-bloc protectionism that contributed to the war.
The mechanism is enshrined in Article I of GATT 1994 for trade in goods, Article II of the General Agreement on Trade in Services (GATS), and Article 4 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Article I of GATT requires that any advantage, such as lower customs duties or higher import quotas, given to one country's product must be extended to "like products" of all other members of the World Trade Organization (WTO), which succeeded the GATT. This ensures equal treatment among trading partners and provides predictability in trade rules.
The MFN principle is a cornerstone of the WTO system, complementing the principle of National Treatment. While the MFN principle prevents discrimination between foreign trading partners, National Treatment prevents discrimination against foreign goods once they have entered the domestic market.
Recently, the MFN clause has been a subject of change in India's bilateral tax treaties, which are separate from the WTO's trade regime. For instance, India and France signed an updated Double Taxation Avoidance Convention (DTAC) in February 2026 that removed the MFN clause from the 1992 protocol, meaning India no longer automatically has to offer France the same tax benefits it negotiates with other countries. This change, along with a similar prospective withdrawal of the MFN benefit in the India-Switzerland DTAC from January 1, 2025, aims to clarify tax rules and reduce disputes. However, the core MFN obligation under the WTO for trade in goods and services remains unchanged.