Most-favored nation treatment is a term that in international economic relations defines the status of a country enjoying reduced tariffs and reduced trade barriers. It is awarded to two (or more) countries with trade agreements.
So, all WTO member countries receive this status. This means that they have equal trading benefits. This is extremely important for small countries participating in trade agreements, since it gives the right to reduce the cost of exports, making them competitive. A country that has received MFN status cannot be regarded as less useful than any other developed (with a status) that has a promising economy. Therefore, the most favored nation increases export and economic development of the state. Exceptions take into account the preferential treatment of developing countries, regional free trade zones and customs associations.
The disadvantage of MFN is that some countries cannot protect their industrial sectors from cheaper goods produced by foreign partners. And this problem is especially exciting. For example, when a state has to export cheap food to the US market, it essentially loses its agriculture, as local farmers are not able to compete with subsidized food in the US and the EU. They are forced to move to cities in search of work. At the same time, merchants increase prices, and this leads to food unrest.
In any case, the national and most favored nation treatment are considered the main principles of WTO trade law. The first means that foreign companies in the trading partner states have equal positions with local ones.
The historical roots of status can be found as early as the eleventh century. But in its modern form, it began to appear in the eighteenth century. In the early years of the development of international trade, it was used between the two countries. In 1794, by the Jay Treaty, the United States granted UK trade status.
In the late 19th and early 20th centuries, in connection with the situation when the most favored nation regime was practically imposed on Asian countries by strong Western empires, they began to consider it as an instrument of predatory policy. One of the striking examples of such unequal relations aimed at plundering the economy of weaker states is the Nanking Treaty (1842) between the Qing Empire (China) and Great Britain, concluded after the First Opium War, by which Britain received the island of Hong Kong.
A Korean history textbook says that a trade agreement with the United States in 1882 is an unequal agreement that allowed the United States to receive unfair privileges from the Joseon Dynasty. However, many people consider the most favored nation as favorable for countries with underdeveloped economies, giving the opportunity to protect their interests. It is likely that they are right. As you know, in the past, superpowers would have had no difficulty in completely destroying the economies of weaker countries, regardless of whether they have status or not.
After the end of World War II, trade agreements were concluded simultaneously between many countries through the General Agreement on Tariffs and Trade, which ultimately led to the WTO in 1994.
WTO agreements are very complex, supported by legal documents covering a wide range of activities. They relate to agriculture, textiles, banking, telecommunications, government procurement, industry standards, product safety, food hygiene rules, intellectual property and much more. The main principle is that the WTO requires that participants provide each other with the most favored nation treatment . Trade experts believe that many MFN points have great advantages and tend to promote trade relations without discrimination and free trade in general.