G e n e r a L a g r e e m e n t o n

Most-favoured nation

The MFN rule is basic to the whole edifice of the GATT. Stated in Article I of the GATT

2

, it requires that

if one GATT (now WTO) signatory grants to another country “more favourable treatment” (such as a

reduction in the customs duty payable on imports of a particular product), it must immediately and

unconditionally give the same treatment to imports from all signatories.

                                                

1

GATT: BISD, Volume IV, incorporating amendments up to 1966. It is

reproduced without change in Results, pages 485-558. The decision that it should cease to have effect at the end of

1995 was taken a year earlier, on 8 December 1994, at the Implementation Conference for the WTO. Formally, it

was a decision of the Fiftieth Session of the GATT Contracting Parties, acting on a recommendation by the Prepara-

tory Committee for the WTO (Decision of 8 December 1994, Transitional co-existence of the GATT 1947 and the

WTO Agreement, document numbered both PC/12 and L/7583). For the text defining GATT 1994, see General

Agreement on Tariffs and Trade 1994.

2

The Articles discussed in the following pages have been carried over textually unchanged from the GATT 1947 to

the GATT 1994. For this reason, neither the main text nor the footnotes distinguish between their legally distinct

“1947” and “1994” versions.

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INTRODUCTION TO GATT 1994 & 1947    3

In other words, all GATT/WTO members are entitled to receive the most favourable treatment given by

any member — or to put it the other way round, they are entitled not to be discriminated against.

This MFN, or non-discrimination, obligation applies to customs duties and charges of any kind connected

with importing and exporting, as well as to internal taxes and charges, and to all the rules by which such

duties, taxes and charges are applied.

The major, and continuing, exceptions to the MFN rule are Article XXIV (discussed below), which allows

members of customs unions and free trade areas to give more favourable treatment to imports from one

another, and a 1979 decision

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 which permits preferences for and among developing countries.

Tariff reductions and bindings

The second core principle is that the members undertake commitments in which they state the maximum

level of import duty or other charge or restriction that they will apply to imports of specified types of

goods.

These commitments, or “bindings” may result initially from bilateral negotiations, in which (for instance)

the government concerned has agreed to another country’s request that it reduce the import duty on certain

products. However, the commitments are then recorded in national schedules which, through the

provisions of Article II, become part of each country’s obligations under the GATT and, because of the

operation of the MFN rule, apply to imports from any member.

The provisions of Article II, combined with technical rules in Article XXVIII on modifying schedules,

provided the basis under which most of the developed countries took part in successive rounds of GATT

negotiations to reduce their tariffs, binding their results in progressively more constraining schedules.

Developing countries to a great extent stood aside from this process, and many had no schedule of bindings

at all. Under the WTO all members are required to have schedules, and the proportion of products subject

to bindings is generally much higher than before. The Article II and XXVIII rules will continue to guide

negotiations under the WTO for the reduction of barriers to trade in goods.