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Most Favored Nation Status

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Definition: Most Favored Nation status is when a country enjoys all the lowered tariffs and reductions of trade barriers. It is conferred between two or more countries that have a trade agreement. All members of the World Trade Organization (WTO) receive the Most Favored Nation Status. This means they all receive the same trade benefits as all other members. This is critically important for smaller members, because it lowers the cost of their exports and makes them more competitive. This, in turn, increases their exports and their country's economic growth.

The downside of Most Favored Nation status is the country must also grant the same to all other members of the agreement, or of the WTO. This means they cannot protect their country's industries from cheaper goods produced by foreign countries. Many countries were excited to get Most Favored Nation Status, so they could export goods cheaply to the U.S. market, only to find they lost their local agricultural industry. Local farmers could not compete with subsidized U.S. and EU food. Many farmers had to move to the cities to find jobs. Then, when food prices escalated thanks to commodities traders, there were food riots.

Also Known As: MFN
Alternate Spellings: Most Favoured Nation
Examples:
If you grant a special customs rate for one Most Favored Nation, you have to do it for all of them.

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