National Treatment: Meaning, Advantages and Disadvantages

What Is National Treatment?

National treatment is a concept of international law that declares if a state provides certain rights and privileges to its own citizens, it also should provide equivalent rights and privileges to foreigners who are currently in the country. National treatment is the principle of giving others the same treatment as one’s own nationals.

National treatment also applies to imported goods once they enter the market (they should be treated the same as locally-produced goods), foreign and domestic services, and to foreign and local trademarks, copyrights, and patents.

Understanding National Treatment

Under national treatment, if Country A provides special tax breaks for its fledgling pharmaceutical industry, all pharmaceutical companies that have operations in Country A will be entitled to the tax breaks, regardless of whether the company is domestic or foreign.

The concept of national treatment can be found in bilateral tax treaties, as well as in all three of the main World Trade Organization agreements: Article 3 of the General Agreement on Tariffs and Trade (GATT), Article 17 of the General Agreement on Trade in Services (GATS), and Article 3 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

However, the principle is handled slightly differently in each of these agreements.

When applied to international agreements, the concept of national treatment means that a state must treat citizens of other states that are participating in the international agreement the same. When goods are imported under an international agreement, they must be treated the same as goods produced locally, although this obligation does not take effect until the imported goods have entered the foreign market.

Advantages and Disadvantages of National Treatment

National treatment is generally considered to be desirable. However, it may not always be. In theory, the concept allows a state to effectively deprive foreigners of any rights or property of which that state also deprives its own citizens.

For instance, suppose that a state has a law that allows it to expropriate property. Under national treatment, a foreign firm would technically still be subject to the expropriation law.

Alternatively, say the laws of a state hold that a married woman may not travel without the permission of her husband. Under the concept of national treatment, a foreign married woman traveling or living in that state would need her husband’s permission to travel, even if she would not need it in her country of origin. However, depending on the country, other laws may exist that could limit national treatment to only the upside benefits.

While, historically, governments, especially those of developing nations, have used national treatment to justify expropriations, these issues are usually dealt with via contracts or treaties.

Another international principle, a minimum standard of justice, relates to providing basic fairness for foreigners, but need not provide the same treatment as that accorded nationals. Another concept, most favored nation treatment (MFN), requires granting the same treatment generally in trade relations, to all foreign persons but does not require providing foreigners with the same treatment accorded nationals.