DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY, LUCKNOW
ACADEMIC SESSION 2022-23

TOPIC:- MOST FAVOURED NATION

TREATMENT AND EFFECT OF ITS
REVOCATION ON RUSSIA

SUBMITTED TO:- SUBMITTED BY:-

Dr. PRIYA ANURAGINI ISHAN RAI (190101070)

Asso. Professor (ITL) HARDIK YADAV (190101059)
AVINASH TIWARI (190101043)
SECTION A
VII SEMESTER
B.A.L.L.B (Hons.)

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 TABLE OF CONTENTS

 ACKNOWLEDGEMENT…………………………………………………….3

 INTRODUCTION……………………………………………………………..4

 SCOPE OF THE MFN PRINCIPLE UNDER THE GATT, 1947………….4

 HISTORY OF MOST FAVOURED NATION TREATMENT…………….4

 ESSENTIAL REQUIREMENTS OF ARTICLE I:1……………………..…5

 EXCEPTIONS TO THE MFN PRINCIPLE………………………………...7

 REVOCATION OF MOST FAVOURED NATION TREATMENT……....8

 WHAT DOES LOSING MFN STATUS MEAN?…………………………...8

 CONCLUSION………………………………………………………………...9

 BIBLIOGRAPHY…………………………………………………………….10

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 I. ACKNOWLEDGEMENT
I express my gratitude and deep regards to my teacher for the subject Dr. PRIYA
ANURAGINI for giving me such a challenging topic and also for her exemplary
guidance, monitoring and constant encouragement throughout the course of this thesis.

I also take this opportunity to express a deep sense of gratitude to my seniors in

the college for their cordial support, valuable information and guidance, which
helped me in completing this task through various stages.

I am obliged to the staff members of the Madhu Limaye Library, for the timely
and valuable information provided by them in their respective fields. I am
grateful for their cooperation during the period of my assignment.

Lastly, I thank almighty, my family and friends for their constant

encouragement without which this assignment would not have been possible.

ISHAN RAI
190101070

HARDIK YADAV
190101059

AVINASH TIWARI
190101043

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 II. INTRODUCTION
“Most Favoured Nation (MFN) principle is one of the most fundamental principle
embodied by the WTO. It requires member states to accord the most favourable tariff
and regulatory treatment given to the product of any one member or non member at
the time of export or import of like products to all other WTO members. If a country
provides favourable treatment to one country regarding a particular product in trade, it
must also provide the same treatment to other countries.1”

“Against this backdrop, Article I of the GATT, 1947 invokes the principle of Most
Favored Nation. It prohibits discrimination that can be in the form of de facto and de
jure discrimination, against the Contracting Parties inter se.2 It ensures that trading
partners are treated equally and applies to all governmental actions, including the
collection of customs duties and fees, how those fees are collected, and the procedures
and regulations that must be followed while importing and exporting goods. Article I
of the GATT additionally calls for non-discrimination amongst Members inter-se in
the importation of products that are “like”.”

III. SCOPE OF THE MFN PRINCIPLE UNDER THE GATT, 1947

“The MFN principle of the GATT forbids discrimination that is either de jure or de
facto, as was noted in the preceding paragraphs. Therefore, discrimination that either
takes the shape of express legal or regulatory measures or behaviour is forbidden. The
Belgian Family Allowances case fully explains the extent of discrimination, and "any
advantage, favour, privilege, or immunity" is used to comprehend the type and degree
of discrimination that the MFN principle forbids.”

IV. HISTORY OF MOST FAVOURED NATION TREATMENT

“The idea of Most Favoured Nation treatment has a long history. An embryonic
version of an MFN clause has been traced as far back as 1417, but the origins of the
Most Favoured Nation commitment in international commercial matters are generally

1
Dr. S R Myneni, International Trade Law (Allahabad Law Agency, Allahabad, 3rd edn., 2017).
2
Ibid.

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considered to stem mainly from the seventeenth and eighteenth centuries. Prior to the
GATT, bilateral trade agreements frequently contained a most-favorable-nation clause,
which significantly aided in the liberalization of trade. One of the President Woodrow
Wilson's Fourteen points in 1918 urged the establishment of an equality of trade
conditions among all the nations consenting to the peace which was explained to
mean whatever tariff any nation might deem necessary for its own economic service
be that tariff high or low, it should apply equally to all foreign nations.3”

“The 1919 peace treaty featured Most Favoured Nation clauses, and the League of
Nations Covenant also made reference to the objective of equitable treatment for all
members trade. But notwithstanding MFN, there were a number of trade barriers and
discriminatory practices. At the end of the Second World War, dismantling trade
privileges, particularly the commonwealth system was one of the main post-World
War II goals of the United States at that time.4 The United States preoccupation with
Commonwealth preferences was so intense that a United States representative in
London in 1946 included Most Favoured Nation as one of its five basic principles for
the development of an International Trade Organization and it is generally said that
failure to achieve this result was one of the causes for the failure of the United States
to accept the Havana Charter, thus causing the International Trade Organization to fail
to materialize.”

“However learning form their mistakes, the major powers of the world decided to
include Most Favoured Nation clauses in the General Agreement on Trade and Tariff
(GATT) and the incorporation of this clause in GATT has contributed to the stability
of the world trade and hence, against this background, MFN principle must be
observed as a fundamental principle for sustaining the multilateral free trade system.
The concept of MFN embodies the principle of non discrimination which is a basic
and key concept of World Trade Organization.5“

3
Mandavi Mehrotra & Aavieral Malik, “Scope of MFN Clause in BITs- Changing Paradigms” 3.2
RGNUL Student Research Review 42 (2016).
4
Supra note 3 at 44.
5
Supra note 3 at 47.

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 V. ESSENTIAL REQUIREMENTS OF ARTICLE I:1
Under Article I:1 there are three questions that must be answered to determine
whether there is a violation of the MFN treatment obligation of Article I:1, namely:-6

1. “Whether the measure at issue confers a trade 'advantage' of the kind covered by
Article I:1 and is discriminatory- The scope of the MFN clause is application to
conduct by means of a government imposed measure which is discriminatory. As a
result of prohibiting any conduct which has a consequence of being discriminatory by
nature, Article I: 1 covers even measures that are discriminatory on exports and
imports.7 In other words, in the event a Contracting Party applies a measure by means
of an advantage, favor, privilege or immunity on either the importation or the
exportation of a product; and such measure is discriminatory, it would attract the
scope of Article I:1 of the GATT, 1947.”

2. “Whether the products concerned are 'like products' - In order to prove that the
principle of MFN has been violated, the aggrieved party must first prove that the
products are “like”. The jurisprudence of the concept of likeness evolved in the case
of Border Tax Adjustment wherein the Panel laid down the guidelines to determine
“like” goods by following four general criteria:8”
a) The property, nature and quality of the products
b) The end uses of the product
c) Consumer tastes and habits
d) Tariff classification of the products.

“The Appellate Body pointed out in Canada-Autos, the object and purpose of GATT
Article I:1 is to prohibit discrimination among like products originating in or destined
for different countries. Somewhat circularly, the Appellate Body went on to say, that
the prohibition of discrimination in Article I:1 also serves as an incentive for
concessions, negotiated reciprocally, to be extended to all other Members on an MFN

6
Shebani Bhargava & Urshila Samant, “MFN Clauses in Competition Law” 8.1 RGNUL Financial &
Mercantile Law Review 166 (2021).
7
Supra note 6 at 168.
8
Supra note 6 at 170.

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basis. GATT Article I:1 provides more than an incentive; it contains an obligation to
extend such benefits to all WTO Members.9”

“Hence, the physical properties, the extent to which the product may be perceived as
serving the same end use, the extent to which consumers perceive and treat the
products as an alternative and the international classification of the products for tariff
purposes is what ought to be taken into account.10”

3. “Whether the advantage at issue is granted 'immediately and unconditionally' to all

like products concerned- If it is not granted then there is violation of Article I:1 of
GATT, 1947.”

VI. EXCEPTIONS TO THE MFN PRINCIPLE

“The MFN obligation is not without exceptions. In addition to the general exceptions
and the security exceptions to the obligations of GATT, the existence of customs
union and free trade areas (FTA) are also justification to measures that are otherwise
GATT inconsistent.”

1. “Customs Union: A Customs Union is defined in Article XXIV: 8 (a) of the

GATT, 1994 as “A substitution of a single customs territory for two or more customs
territory so that duties and other restrictive regulations of commerce are eliminated
w.r.t.substantially all trade between the constituent territories of the union or at least
w.r.t. substantially all trade in products originating in such territories.”

“Additionally, if the creation of that customs union were made impossible if the
adoption of that measure was not permitted, the establishment of a customs union
supports a policy that is otherwise inconsistent with GATT. At the same time, the
existence of a customs union makes it obligatory for the members of the customs

9
Niharika Vij, International Trade Law (Universal Law Publishing, New Delhi, 1st edn., 2016).
10
Appellate Body Report, European Communities – Measures affecting Asbestos and Asbestos
containing products, WT/DS145/AB/R, Para. 102 (March 12, 2001)

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union to apply substantially the same duties and other regulations of commerce to
each of the trade territories not included in the union.11”

2. “Free Trade Area: Measures inconsistent with the MFN obligation under the
Article I:1 of the GATT is also permitted with the formation of a free trade area. A
free trade area is defined under Article XXIV: 8 (b) as “A group of two or more
customs territories in which duties and other regulative restrictions are eliminated on
substantially all trade between the constituent territories in products originating in
such territories.” Hence, the measure is justified on the ground that the formation of
the free trade area would be unattainable but for the existence of such a measure.”

3. “Enabling Clause: Next,countries may also be exempted from the MFN

obligation with the aim to provide preferential treatment to developing countries. The
UNCTAD Special Committee on Preferences recognized as long as in the year 1970
that preferential treatment granted under the generalized scheme of preferences was a
motivating factor for developing countries to increase their exports so as to promote
industrialization and accelerate economic growth. Thereafter, the Waiver Decision on
the Generalized System of Preferences was passed in the year 1971 to give effect to
the Agreed Conclusions.”

“It authorizes Members to deviate from MFN obligations under Article I: 1 of the
GATT and accord differential and more favorable treatment to developing countries,
without according the same to other Members. Therefore, products made in
developing nations may be given preferential treatment under the Generalized System
of Preferences by Members of rich/developed nations.”

VII. REVOCATION OF MOST FAVOURED NATION TREATMENT

“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. India suspended

11
Ibid.

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Pakistan's MFN status in 2019 after a suicide attack by a Pakistan based Islamist
group killed 40 police. Pakistan had never applied MFN status to India.12”

VIII. WHAT DOES LOSING MFN STATUS MEAN

 “Revoking Russia's MFN status sends a strong signal that the United States and
its Western allies do not consider Russia a 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 to restrict services out of the country. They could also overlook
Russian intellectual property rights. Ahead of MFN status removal, the United
States had already announced a ban on imports of Russian oil and gas.”

 “Canada announced last week that it was removing MFN status for Belarus and
Russia, allowing Russian forces to enter Ukraine from there. As a result,
practically all imports are now subject to a 35% general duty. "Russia and
Belarus will join North Korea as the only countries whose imports are subject to
the general tariff," Canada said.13”

 “About 70% of all Belarus imports, including those of tobacco, potash, and goods
made of wood or steel, are already prohibited by the European Union. However,
it is waiting for formal adoption of MFN suspension before taking similar action
against Russia. Imports from Russia include mineral fuels, precious metals and
stones, iron and steel, fertilizers and inorganic chemicals.”

 “Japan formally revoked Russia’s “most favoured nation” trade status on April 20
over its invasion of Ukraine, as Tokyo steps up sanctions amid revelations of the
Russian military’s widespread atrocities against civilians.14”

12
What Revoking Russia’s MFN means, available at:
https://indianexpress.com/article/explained/most-favoured-nation-status-explained-russia-7816501/
(last visited on November 7, 2022).
13
Factbox: What Revoking Russia’s MFN means, available at: https://www.reuters.com/world/what-
revoking-russias-most-favoured-nation-status-means-2022-03-11/ (last visited on November 7, 2022).
14
Japan revokes Russia’s MFN, available at: https://www.thehindu.com/news/international/japan-
formally-revokes-russias-most-favoured-nation-status/article65337834.ece (last visited on November 7,
2022).

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 “The MFN move comes on top of unprecedented sanctions, export controls and
banking restrictions aimed at pressuring Russian President Vladimir Putin to end
the largest conflict in Europe since World War II.”

IX. CONCLUSION
“Withdrawal of Most Favoured Nation status of Russia is having a significant impact
on Russia’s ability to wage its unjust war against Ukraine.Specifically, Russian
Central Bank assets worth over $300 billion have been immobilized as a result of
sanctions imposed by the United States and its friends, partners, and allies, making it
more difficult for the central bank to support the war effort and ease restrictions.15”

“Russian oligarchs and financial organization that have been sanctioned have been
pressured to sell off long-held assets outside of Russia. Additionally, banks in various
nations have reduced their interactions with the Russian financial sector as a result of
sanctions. Despite benefiting from high energy prices, the IMF still expects Russia’s
economy will contract by over 3 percent this year. Lost investment, export controls,
and constraints on Russia’s real economy will create a drag on Russia’s growth
prospects for years to come. Significantly, U.S. sanctions and export controls have
severed Russia’s access to key technologies and industrial inputs that erode its
military capability.”

15
The Impact of Sanctions and Export Controls on the Russian Federation, available at:
https://www.state.gov/the-impact-of-sanctions-and-export-controls-
ontherussianfederation/#:~:text=Specifically%2C%20sanctions%20implemented%20by%20the,effort
%20and%20mitigate%20sanctions%20impacts. (last visited on November 7, 2022).

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 X. BIBLIOGRAPHY

CASES
 Border Tax Adjustment
 Belgian Family Allowances
 Canada-Autos, 2000
 European Communities-Asbestos

BOOKS
 Dr. S R Myneni, International Trade Law (Allahabad Law Agency, Allahabad,
3rd edn., 2017).
 Niharika Vij, International Trade Law (Universal Law Publishing, New Delhi,
1st edn., 2016).

ARTICLES
 Mandavi Mehrotra & Aavieral Malik, “Scope of MFN Clause in BITs- Changing
Paradigms” 3.2 RGNUL Student Research Review 42 (2016).
 Shebani Bhargava & Urshila Samant, “MFN Clauses in Competition Law” 8.1
RGNUL Financial & Mercantile Law Review 166 (2021).

WEBSITES
 Factbox: What Revoking Russia’s MFN means, available at:
https://www.reuters.com/world/what-revoking-russias-most-favoured-nation-
status-means-2022-03-11/ (last visited on November 7, 2022).

 Japan revokes Russia’s MFN, available at:

https://www.thehindu.com/news/international/japan-formally-revokes-russias-
most-favoured-nation-status/article65337834.ece (last visited on November 7,
2022).

 The Impact of Sanctions and Export Controls on the Russian Federation,

available at: https://www.state.gov/the-impact-of-sanctions-and-export-controls-
ontherussianfederation/#:~:text=Specifically%2C%20sanctions%20implemented

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 %20by%20the,effort%20and%20mitigate%20sanctions%20impacts. (last visited
on November 7, 2022).

 What Revoking Russia’s MFN means, available at:

https://indianexpress.com/article/explained/most-favoured-nation-status-
explained-russia-7816501/ (last visited on November 7, 2022).

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