Most Favored Nation (MFN)
A non-discriminatory trade policy commitment on the part of one country to extend to another country the lowest tariff rates it applies to any other country.
(WTO) All contracting parties to the World Trade Organization (WTO) undertake to apply such treatment to one another under Article I of the treaty.
Under MFN principles, when a country agrees to cut tariffs on a particular product imported from one country, the tariff reduction automatically applies to imports of this product from any other country eligible for most-favored nation treatment. This principle of nondiscriminatory treatment of imports appeared in numerous bilateral trade agreements prior to establishment of the WTO. A country is under no obligation to extend MFN treatment to another country unless both are bilateral contracting parties of the World Trade Organization or MFN treatment is specified in a bilateral agreement.
(U.S.) The most favored nation principle was a feature of U.S. trade policy as early as 1778. Since 1923 the United States has incorporated an “unconditional” Most Favored Nation clause in its trade agreements, binding the contracting governments to confer upon each other all the most favorable trade concessions that either may grant to any other country subsequent to the signing of the agreement. The United States now applies this provision to its trade with all of its trading partners except for those specifically excluded by law. As a result of the controversy around granting China MFN status, the U.S. has changed MFN to “Normal Trade Relations.” See normal trade relations, Harmonized Tariff Schedule of the United States.