Most Favored Nation Clause

DEFINITION of 'Most Favored Nation Clause'

A level of status given to one country by another and enforced by the World Trade Organization. A country grants this clause to another nation if it is interested in increasing trade with that country. Countries achieving most favored nation status are given specific trade advantages such as reduced tariffs on imported goods.

Special consideration is given to countries that are classified as "developing" by the World Trade Organization.

BREAKING DOWN 'Most Favored Nation Clause'

During the Clinton presidency, congressional representatives heartily debated the merit of granting most favored nation status (MFN) to China and Vietnam. Proponents of granting MFN status argued that a reduction in tariffs on Chinese and Vietnamese goods would give the American consumer access to quality products at relatively low prices, and would serve to enhance a mutually beneficial trade relationship with the two rapidly developing economies.

Meanwhile, opponents argued that granting MFN status to the two nations would be unfair given their history of human rights violations. Others thought that the inflow of cheaper goods from the China or Vietnam could put some Americans out of work.

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