B.A. LL.B. (Five Years) Sem 10 International Trade Economics 2025 Jan Question Paper with Solutions

For full marks, cover: the origin of the MFN clause in commercial treaties and the shift from conditional to unconditional MFN; Article I:1 of GATT 1994 broken into its elements; what it covers; MFN in services and intellectual property; why it is the cornerstone (economic and political reasons); a decided case on breach (European Communities: Bananas III) and on hidden discrimination (Canada: Autos); the exceptions grouped by purpose; how far the exceptions have eroded the rule.

Origin of the principle

The most favoured nation clause grew up in the commercial treaties of the seventeenth to nineteenth centuries. A state promised a partner the best treatment it gave any third country. The Cobden-Chevalier Treaty of 1860 between Britain and France spread such clauses across Europe.

Two forms were used. Under conditional MFN, a later concession passed to the partner only if the partner paid an equivalent price. Under unconditional MFN, it passed automatically. GATT 1947 adopted the unconditional form, and it became Article I of the Agreement.

Why MFN is the cornerstone

Economic reasons. Goods are bought from the cheapest efficient supplier, not the most favoured one. Concessions spread to all members, so tariffs fall faster.

Political reasons. All members, large and small, stand on an equal footing. Small countries gain from bargains struck by large ones. Discrimination of the kind that soured relations in the 1930s is ruled out.

Practical reasons. One tariff applies to all members, so customs work is simpler and rules of origin matter less.

Breach of the principle

European Communities: Bananas III (WT/DS27/AB/R, adopted 25 September 1997). The European Communities gave tariff quotas and licensing advantages to bananas from African, Caribbean and Pacific countries over Latin American bananas. The Appellate Body held that the regime breached Article I and Article XIII of GATT, and the GATS. Ecuador was later authorised to suspend TRIPS concessions in retaliation.

5. Special arrangements. Waivers under Article IX:3 of the Marrakesh Agreement, historical preferences under Article I:2, non-application under Article XIII, and the GATS list of MFN exemptions.

Has the exception swallowed the rule?

Over 350 regional trade agreements are now in force, and preferential tariffs cover a large part of world trade. The European Union, ASEAN and India's own agreements with ASEAN, Japan and the UAE all depart from MFN within their membership. Yet MFN still governs trade between members without such agreements, and it remains the starting point that every exception must justify.

Conclusion. MFN, in its unconditional form in Article I:1, requires every member to give all members the best treatment it gives any country. It extends to services and intellectual property and can be amended only by consensus of all members. Its exceptions serve regional integration, development, fair trade, non-trade values and special needs. Each is strictly read, as Turkey: Textiles and European Communities: Tariff Preferences show, so MFN remains the rule.