Switzerland has recently revoked India’s Most Favoured Nation (MFN) clause in Double taxation avoidance agreement status following a Supreme Court ruling in an adverse tax case involving Nestle.
Most Favoured Nation (MFN)
The Most Favoured Nation (MFN) principle is a fundamental rule under the World Trade Organization (WTO) that requires member countries to treat all other members equally in trade policies. This includes providing the same tariffs, quotas, and trade barriers to all.
Designation:
MFN status is automatically granted to all 164 WTO member countries.
Historical Background:
MFN was introduced after World War II as a central element of the multilateral trading system within the WTO framework.
Key Features of MFN Clause:
- Non-Discrimination:
- A country must treat all WTO members equally in matters of trade, such as tariffs and market access.
- Automatic Extension:
- Any privilege or concession granted to one trading partner must automatically extend to all other WTO members.
- Applicable Areas:
- Trade in goods, services, and intellectual property rights.
- Exceptions:
- Regional trade agreements like Free Trade Agreements (FTAs) and customs unions.
- Special preferences to developing and least developed countries under Generalized System of Preferences (GSP).
Benefits of MFN:
- Global Trade Stability: Eliminates discrimination, creating a predictable trade environment.
- Encourages Free Trade: Promotes open markets by minimizing barriers.
- Level Playing Field: Ensures no country is unfairly disadvantaged.
- Boosts International Cooperation: Enhances mutual trust among trading nations.
Challenges with MFN Clause:
- Erosion by FTAs: Preferential agreements can sideline the MFN principle.
- Unequal Benefits: Advanced economies often benefit more due to better capacity and resources.
- Economic Vulnerability: Small and developing economies may struggle to compete under equal terms.
