External Sector

Indian Economic System

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Indian Economy - Understanding the basics of Indian economic system

Consider the following statements regarding the most favored nation (MFN) status:

1. The most-favored-nation clause allows a country to extend favorable trade terms only to a few select trading partners.

2. The MFN clause is one of the important principles adopted by the trading nations under the World Trade Organization.

3. Free Trade Agreements are exempted from the MFN principle.

Which of the statements given above is/are correct?

1 and 2 only

2 and 3 only

3 only

1, 2 and 3

2 and 3 only

Under WTO rules, members cannot discriminate among trading partners.
If a special status is granted to one, it must extend to all WTO members.
In short, MFN enables equal trade among all WTO members, not unique trading privileges.
Most-favoured-nation (MFN): treating other people equally Under the WTO agreements, countries cannot normally discriminate between their trading partners.
Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.