MOST FAVOURED NATION (Syllabus: GS Paper 3 – Economy)

News-CRUX-10     29th November 2023        

Context: Recently, European multinational companies grappling with substantial tax demands in India have filed a review petition, urging the Supreme Court to apply the Vienna Convention in interpreting the most-favored-nation (MFN) clause in tax treaties.

Most Favoured Nation (MFN)

  • About: MFN status refers to a level of treatment granted by one country to another in the context of international trade.
  • It means no country should give special treatment to goods or services coming from one particular trading partner.
  • Origin: MFN principle is a cornerstone of the multilateral trading system conceived after World War II.
  • Exceptions for MFN: Trade blocs like the USMCA and the European Union, which are allowed to discriminate against imports from outside the bloc. It reduces trade barriers in response to unfair competition

Benefit of MFN

  • Facilitates entry into broader markets for traded goods.
  • Lowers the export item expenses through significantly reduced tariffs and diminished trade barriers.
  • Enhances competitiveness in trade.
  • Streamlines bureaucratic obstacles, ensuring uniform tariffs for all imports.

Vienna Convention on the Law of Treaties (VCLT):

  • It is an international agreement that regulates treaties among sovereign states. It was signed in 1969 and effective from 1980.
  • Known as the "treaty on treaties", the VCLT establishes comprehensive, operational guidelines, rules, and procedures for how treaties are drafted, defined, amended, and interpreted.
  • Signatories: 45, India not a party.
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