Russia's MFN Status- UPSC Current Affairs

Why in the News?

The United States, the European Union, Britain, Canada, and Japan have been planning to revoke Russia’s “Most Favored Nation” (MFN) status over its invasion of Ukraine.

Also read: Why India Should Have Mediated Between Ukraine and Russia

Probable Question

How can the withdrawal of the Most Favored Nation (MFN) status of Russia impact the course of the Ukraine-Russia War?

Key Points

What is the ‘Most Favored Nation’ status?

• Article 1 of General Agreement on Tariffs and Trade (GATT), 1994, requires every WTO member country to accord MFN status (or preferential trade terms with respect to tariffs and trade barriers) to all other member countries.
• While the term ‘Most Favored Nation’ suggests special treatment to one country, the MFN clause in WTO’s General Agreement on Tariffs and Trade is intended to ensure the opposite — that member countries of the organization do not discriminate between their trade partners. 
• In trade contracts, the ‘most favored customer clause’ is a clause by which the seller agrees to give a buyer the best terms he makes available to any other buyer. 
  • For Example, say country A accorded MFN status to all the members of WTO. Later, if country A grants a concession to country B as a part of negotiations between them, the same concession will be granted to all other WTO members by virtue of their MFN status, even if the latter offers no concession in return.
• Thus, every WTO member nation usually grants MFN status to all other members, in effect promising that everyone will receive equitable treatment from it. 
• The primary condition under MFN is that a country must charge the same tariff rate on imports irrespective of their origin.

Removal of MFN Status

• There is no formal procedure for suspending MFN treatment and it is not clear whether members are obliged to inform the WTO if they do so.
  • For Example, India suspended Pakistan’s MFN status in 2019 after a suicide attack by a Pakistan-based Islamist group killed 40 police.

Also watch a detailed video on CBI General Consent by Prem Sodhani Sir (Current Affairs Faculty) for UPSC preparation :

Implications of Removal of MFN Status to Russia

• Revoking Russia’s MFN status sends a strong signal that the United States and its Western allies do not consider Russia an economic partner in any way, but it does not in itself change conditions for trade. 
• It does formally allow the Western allies to increase import tariffs or impose quotas on Russian goods or even ban them and restrict services out of the country. 
  • They could also overlook Russian intellectual property rights.

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