World Trade Organization

WTO Final Project
The WTO agreements provide for MFN treatment with an intention of multilateralizing as well as liberalizing trade via the enhancement and promotion of service and trade equality between the World Trade Organization (WTO) member states. To be more specific, the MFN principle means that “under the WTO agreements, countries cannot normally discriminate between their trading partners” (WTO, 2019). Thus, as WTO further suggests, no special favors should be advanced to anyone that are not accessible to other WTO members. The said favors in this case could include, but they are not limited to, lower customs duty rate for certain products. It should, however, be noted that the intention highlighted above no longer appears operational due to, in part, the incorporation of factors that conflict with the original purpose of the provision of the MFN treatment in WTO agreements. It is important to note that the burden of The Sutherland Report’s Chapter II “is the erosion of the unconditional most-favored-nation (MFN) principle and the resulting grief to the world trading system” (McKinney and Gardner, 2008, p. 215). Towards this end, it would be prudent to assess assertions voiced in the said chapter.
In essence, under GATT, the MFN treatment has in some quarters been deemed a critical step towards services and trade discrimination. This is more so the case given that the MFN treatment obligation effectively discourages countries from engaging in discriminatory practices against other countries. It should, however, be noted that as the Southerland Report points out, “decades after the founding of the GATT, MFN is no longer the rule; it is almost the exception…” (Addo, 2014, p. 182). The emasculation of the MFN treatment obligation started with the move to provide some protection to various factors seen to be in conflict with trade liberalization. These factors include, but they are not limited to, societal interests and values. Towards this end, insertions were made in GATT as exceptions – with states in this case being permitted, in some special circumstances, to embrace inconsistent measures. Some of the said MFN treatment exception relate to balance-of-payments (BOP), regional trade agreement (RTAs), and security (Cohn, 2008). When it comes to RTA exceptions, depature from MFN principles is justified when there is need to advance service suppliers or goods preferential treatment when the said services or goods originate from trading partners within either a free trade area or customs union (Cohn, 2008). In this case, the said preferential treatment may not be replicated with reference to all World Trade Organization member states. On the other hand, exceptions that relate to balance-of-payments grant the justification to adopt the relevant course of action in seeking to protect the BOPs and the financial position (external) of a member (Cohn, 2008). We also have security exceptions. In this case, deviation from the MFN treatment obligation is justified when there is need to safeguard critical national security elements, even in instances whereby the measures adopted are restrictive to trade in goods (Cohn, 2008). It is also important to note that in some exceptional circumstances, temporary waivers could be granted whenever member states grant the relevant authorizations.
In addition to the exceptions highlighted above, there are various other factors that have contributed to the further marginalization of the MFN treatment obligation. For instance, the creation of free trade areas and custom unions as a consequence of RTAs emergence significantly contributes to marked pull-back from the MFN treatment. Trost (2008) is convinced that “one of the problems that the rush to enter in RTAs has created is the undermining of the WTO as a trade regulating body whose purpose was to promote global stability” (71). In essence, the said RTAs result in the exclusion of other countries from the preferential treatment that members of RTA have access to. It is important to note that although this is, in basic terms, incompatible and in conflict with the non-discrimination principle under MFN, WTO law permits it due to its embrace of regional economic integration as a result of the role it plays in not only the further promotion of trade liberalization, but also economic integration. Within the last few decades, there have been concerted efforts towards integration. Examples on this front are inclusive of SEAFTA, OECD, NAFTA, GAFTA, and AFTA (Closa, Casini, and Sender, 2016). The main concern, it should be noted, and as Trost (2007) further points out, is the RTAs proliferation between GATT-WTO member states. As a matter of fact, in the words of Trost (2007), the apparent repudiation of MFN has been “in favor of more expedient RTAs which, whilst legal in terms of the loose interpretation of GATT rules and weakness of the WTO as an administrative instrument, are certainly not in the spirit of MFN treatment on which GATT was founded” (43).
In this final analysis, it is important to note that with special reference to trade diversion or creation, regional integration as an attempt to mulitlateralize or liberalize trade is likely to continue being a contentious issue. This is more so the case when it comes to attempts to find common ground between the rights of World Trade Organization member states to trade and the benefits of regional trade agreements. At present the future of the MFN trade obligation is uncertain in the light of disuse of its provisions. This is echoed in the Sutherland Report with the claim that amongst other things, “decades after the founding of the GATT, MFN is no longer the rule; it is almost the exception…” (Addo, 2014, p. 182).



References
Addo, K. (2014). Core Labor Standards and International Trade: Lessons from the Regional Context. New York, NY: Springer.
Closa, C., Casini, L. & Sender, O. (2016). Comparative Regional Integration: Governance and Legal Models. Cambridge: Cambridge University Press.
Cohn, T.H. (2008). Global Political Economy: Theory and Practice. Belmont, CA: Pearson Longman.
McKinney, J.A. & Gardner, H.S. (Eds.). (2008). Economic Integration in the Americas. New York, NY: Routledge.
Trost, F. (2008). Reconciling Trade Agreements with the Most Favored nation Principle in WTO-GATT. MqBJL, 5, 43-72.
World Trade Organization - WTO (2019). Principles of the Trading System. Retrieved from https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm