von JAYANTI DHINGRA
The Most Favoured Nation (MFN) principle under Article I.1 of the General Agreement on Tariffs and Trade (GATT 1947) is a non-discrimination principle prescribing for any trade advantage given to one country to be extended to all WTO members. Recently, the United States (US) and the European Union (EU) have called for the MFN principle to be reassessed. This article talks about their submissions and how this reassessment, in essence a revocation, if done, would impact the international trade law regime.
Brief background to MFN
The main aim of MFN, as enshrined under GATT Article I.1 is to prevent trade distortion and unfair advantage to one particular country. The exceptions to MFN include Regional Trade Agreements (RTA), Free Trade Agreements (FTA), customs union (GATT Article XXIV), general exceptions (GATT Article XX/XXI), Special and Differential Treatment for and of developing countries (S&DT). The Enabling Clause of 1979 is another exception to MFN which allows for lower tariffs being imposed on developing countries to offer preferential treatment to them. MFN treatment has had significant impacts in global trade and global welfare, amounting to around 72% of the global trade.
However, since 2025, the core ideology behind MFN is being increasingly faded away by imposition of unilateral tariffs based on country basis, rather than on any universal framework applicable. Other countries are coming up with their own agreements like the European Union–Mercosur Partnership Agreement, India–European Union Free Trade Agreement, etc. While these agreements are permissible under GATT Article XXIV, this depicts a development countering the trajectory of universal free trade as favoured by the MFN principle.
The 14th WTO Ministerial Conference was held from March 26-29, 2026, in Yaoundé, Cameroon. One of the main debates that happened in the Conference was on MFN. The US and EU had firmly taken their stance on diluting MFN. They advocated for free autonomy to be given to the members to structure their plurilateral agreements. However, the developing countries, including India and South Africa strongly resisted this approach.
US and EU submissions before the WTO
This debate happened due to the US releasing a paper in December 2025 stating its reservations on the MFN principle. This was followed by the European Union releasing its paper in January 2026 on the importance of “conditional MFN”, rather than on “unconditional MFN”.
The US mainly argued that the MFN principle was “designed for an era of deepening convergence among trading partners” and that this era has “passed…replaced by deepening divergence rooted in some countries’ unwillingness to pursue and uphold fair, market-oriented competition.” A further argument made was that the trading partners should be able to come up with their own criteria to facilitate trade between different countries differently, rather than imposing a universal MFN tariff rate on each one of them.
The European Union has always been an advocate of multilateralism. However, in 2026, EU also presented similar statements which the US made, noting that certain structural challenges need to be tackled which has been “exacerbated by geopolitical tensions” and the “weaponisation of trade and tariff measures.” It suggested that the WTO should reflect on the principle of MFN and its reciprocity principle; each member should have the discretion in their “levels of openness”, and in creating “possible new links between commitments taken and the level of tariffs liberalisation.” It emphasised the importance of reciprocity and its significance in plurilateral agreements, which would in turn lead to more “closer economic cooperation” between countries.
Both the US and EU have stated that a developing country cannot ‘self-designate’ and no blanket treatment to them should be applicable under the Special and Differential Treatment accorded to developing countries. Instead of its universal application, it will be applied selectively to cover some individual developing countries based on their economic development criteria. S&DT’s sole purpose was to create an exception of reciprocity for developing countries to allow them to further their economic development.
This stance by the US and the EU could be partly attributed to the US-EU Framework Agreement of July 2025. Here, the US had stated to apply either the MFN tariff rate or a flat tariff rate of 15% which will encompass both the MFN and the reciprocal tariff on EU products. This was made effective from 1 September 2025, and the MFN tariff rate was restricted to certain products like unavailable natural resources, some forms of pharmaceutical products, aircrafts and its parts. In return, the EU removed tariffs from all US industrial goods and was given preferential quota on certain agricultural related products. This framework might become MFN inconsistent, if challenged before the WTO, as it extended benefit to one member without extending it to all WTO members.
Effects on International Trading order
When the US (WT/GC/W/984) and the EU (WT/GC/W/986) argued on MFN not representing the current world trade regime, they both had already violated MFN before in some form or the other. In the United States, President Trump invoked the International Emergency Economic Powers Act (IEEPA), 1977 to impose reciprocal tariffs differentiating from country to country. This clearly went against the MFN principle, as tariffs were imposed unilaterally and on a differentiating basis across countries and across sectors. Though the US imposition of unilateral tariffs on the members under the IEEPA is problematic, the US created a discriminatory system with the US-EU framework, as the tariff imposed pursuant to Section 232 of the Trade Expansion Act, 1962 was still imposed on all other countries, except certain sectors of the EU. This is clearly violative of the MFN principle under GATT Article I:1. The WTO was framed around “unconditional MFN” precisely to prevent destabilisation of trade.
The Enabling Clause had enabled the bending of MFN in favour of developing economies. Rather, it is now being used for the opposite purpose. In fact, it has been recognised by scholars that preferential arrangements would inevitably reduce global welfare when “trade diversion exceeds trade creation benefits”. This could lead to a “spaghetti bowl” problem, coined by Jagdish Bhagwati, where the increasing number of plurilateral agreement would inevitably overlap with each other. This could take the form of free trade agreements (FTAs), preferential trade agreements (PTAs) or regional trade agreements (RTAs), which would create “miniature trade regimes”, having a criss-cross of plethora trading relationships between different countries. These agreements are not meant to be the rule, but an exception to MFN; though reality is characterised by the opposite.
These regional trade agreements act as “stumbling blocks” for multilateralism where countries increasingly take smaller MFN tariff cuts in comparison to other countries. Each agreement is different from the others because of differing Rules of Origin (ROO). ROO point to the country of origin of products which further engages the criteria to identify if preferential tariffs will be given or not. The “spaghetti bowl” poses problems as each ROO will have different origin-based content which will make it difficult to track them, leading to increase in costs and regulatory compliances hurdles.
Conclusion
The MFN is not dead yet. Only its importance might have been diluted down, and this stance is predominantly that of the developed countries, not the wider WTO membership. Currently, the world trading order is scattered, and any framework to replace multilateralism with a plurilateral framework would require consensus of the entire WTO community, which would be currently difficult to obtain. But the WTO needs to have a proactive role in this before the world trade order gets further dispersed/scattered.
Zitiervorschlag: Dhingra, Jayanti, The US-EU Challenge to the Most Favoured Nation (MFN) Principle and the Future of Multilateralism, JuWissBlog Nr. 65/2026 v. 21.07.2026, https://www.juwiss.de/65-2026/
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