Unit 5 - Background & Issues

In Unit 5 we cover three aspects of international trade law’s core pillar of the multilateral system, the “most favored nations” or MFN principle.  What is the MFN principle?  Basically, that in the multilateral trading system, all countries theoretically should get the same deal, so that when any advantage in trade law terms (lower tariffs, preferential quotas, etc.) is provided to any country by a WTO member country, all WTO member countries should automatically receive the benefit.  We first look at MFN in the context of trade in goods, as a basic pillar of the multilateral trading system since 1947 GATT Agreement Article I (still in force as updated under the GATT/WTO Agreement as of 1994).

Meanwhile, the first and most significant exception to the MFN approach is presented by special and differential treatment of developing countries, meaning since the 1970s developing countries have been entitled to depart under certain circumstances from the MFN idea of one rule for all, insofar as they could delay or change implementation to fit their individual circumstances and development plans (and countries were self-defined as "developing countries," sometimes unreasonably with the passage of time, with challenges to China as "developing country" currently topping the list of concerns).  This is a not insignificant problem, since one of the chief difficulties to any potential WTO reform would be US' almost certain insistence on reforming "special and differential" treatment.  At this point, no one really thinks that the Sudans and Myanmars of the world as less developed countries (LDCs) do not need some kind of special arrangement, but the issue is that many countries that were poor once upon a time have by now achieved middle income or higher status, so the issue is who now should qualify for special and differential treatment?  (And this kind of differential treatment and funding question represents a broader issue in development, since the "special deal" kinds of questions now apply with equal force in the climate change and international environmental law areas.)

Second, we cover the media and cultural preservation exceptions, a major MFN exception (e.g., mandating a certain percentage of locally produced media content for broadcast TV, which may present either MFN or national treatment questions, depending upon circumstances).  Have you ever noticed those production credits at the end of movies or television stating that such and such a (foreign) government-sponsored production fund was a co-sponsor?  The BBC model followed in many countries was traditionally that media was a government-owned enterprise funded by the taxpayers themselves via something like a license or programming support fee, so a state monopoly on broadcast media was not unusual in many countries (at least as a traditional matter, although now there is typically competition to broadcast media from social media and the internet).  So, for example, the French and the Canadians are both famous for limiting foreign programming in their broadcast media.  Regarding the French, due to concerns about language preservation, Francophone programming from a variety of countries might benefit, but it may be about more than language if some minimal amount of programming must be produced in France.  Regarding the Canadians, their perspective is that the looming English language US media presence lies just across their border, which traditionally would leak over the border into the most heavily populated television markets of Eastern Canada in Southern Ontario and Quebec.  The majority of large Canadian cities lie relatively close to the Northern US border.  Meanwhile, Quebec and Montreal might favor Francophone programming due to minority status within Anglophone Canada, but the Quebecois are largely bilingual as a practical matter.

Third, we shall look at the MFN particularly as applied to services to address two complications.  One is simply to address the issue whether MFN works the same way for services as it does traditionally for goods, and the other is to address the idea that currently most services liberalization is proceeding under FTA-type agreements (enjoying a goods exemption generally under Article XXIV of the GATT/WTO Agreement, and a services exemption generally under Article V of the GATS), which are a basic carve out from the coverage of multilateral MFN.  FTAs tend to implement broader MFN principles only to a very limited extent, if at all, because they are intended to preserve exclusivity.  In practical terms, will MFN have the same scope for services as for goods, if most services liberalization proceeds via FTAs?