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59-500: There is a debate in legal circles whether MFN clauses in bilateral investment treaties include only substantive rules or also procedural protections. The members of the World Trade Organization (WTO) agree to accord MFN status to each other. Exceptions allow for preferential treatment of developing countries , regional free trade areas and customs unions . Together with the principle of national treatment , MFN

118-721: A bilateral level, however, the United States could not grant MFN status to some members of the former Soviet Union, including the Russian Federation , because of the Jackson–Vanik amendment . This presented an obstacle to those countries' accession to the WTO. At the urging of Vice President Joe Biden , the Jackson–Vanik amendment (which attempts to punish human rights violations without hampering trade) ceased to apply to

177-407: A certain number of conditions are met, one client may be entitled to the lowest fee offered to other clients with a substantially identical investment strategy and the same or lower level of assets under management. The most favoured nation clause can also be included in an agreement between a state and a company or an investor. This involves the provision of special privileges and advantages although

236-496: A common market. A " fiscal union " introduces a shared fiscal and budgetary policy. In order to be successful the more advanced integration steps are typically accompanied by unification of economic policies (tax, social welfare benefits, etc.), reductions in the rest of the trade barriers , introduction of supranational bodies, and gradual moves towards the final stage, a "political union".   [ partial ] — [ substantial ] — [ none or not applicable ] Globalization refers to

295-416: A different speed of economic unification (coherence) applied both to economic sectors and economic policies. Implementation of the coherence principle in adjusting economic policies in the member states of economic block causes economic integration effects . The framework of the theory of economic integration was laid out by Jacob Viner (1950) who defined the trade creation and trade diversion effects,

354-724: A global scale, a phenomenon now realized in continental economic blocs such as ASEAN , NAFTA , USAN , the European Union , AfCFTA , and the Eurasian Economic Union ; and proposed for intercontinental economic blocks, such as the Comprehensive Economic Partnership for East Asia and the Transatlantic Free Trade Area . Comparative advantage refers to the ability of a person or a country to produce

413-421: A lower price, closer to the cost of cloth. The conclusion drawn is that each country can gain by specializing in the good where it has comparative advantage, and trading that good for the other. Economies of scale refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer's average cost per unit to fall as the scale of output is increased. Economies of scale

472-473: A means to sanction investor misconduct. Economic integration Economic integration is the unification of economic policies between different states, through the partial or full abolition of tariff and non-tariff restrictions on trade. The trade-stimulation effects intended by means of economic integration are part of the contemporary economic Theory of the Second Best : where, in theory,

531-403: A mere prohibition to enact discriminatory legislation concerning duties on goods of like character imported from an MFN partner. The court ruled that MFN does not constrain the U.S. from giving out special privileges to other countries. The ideas behind MFN policies can first be seen in U.S. foreign policy during the opening of Japan in the mid to late 1850s, when they were included as a clause in

590-451: A multilateral reciprocal relationship the same privilege would be extended to the group that negotiated a particular privilege. The non-discriminatory component of GATT/WTO applies a reciprocally negotiated privilege to all members of GATT/WTO without respect to their status in negotiating the privilege. Most favoured nation status is given to an international trade partner to ensure non-discriminatory trade between all partner countries of

649-506: A new definition of gross domestic product (GDP), as a difference between aggregate revenues of sectors and investment (a modification of the value added definition of the GDP). It was possible to analytically prove that all the states gain from economic unification, with larger states receiving less growth of GDP and productivity, and vice versa concerning the benefit to lesser states. Although this fact has been empirically known for decades, now it

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708-1190: A non-market economy, which had been originally suspended in 1951, was restored in 1980 and was continued in effect through subsequent annual Presidential extensions. Following the massacre of pro-democracy demonstrators in Tiananmen Square in 1989, however, the annual renewal of China's MFN status became a source of considerable debate in the Congress, and legislation was introduced to terminate China's MFN/NTR status or to impose additional conditions relating to improvements in China's actions on various trade and non-trade issues. Agricultural interests generally opposed attempts to block MFN/NTR renewal for China, contending that several billion dollars annually in current and future U.S. agricultural exports could be jeopardized if China retaliated. In China's case, Congress agreed to permanent normal trade relations (PNTR) status in Pub. L.   106–286 (text) (PDF) , which President Clinton signed into law on October 10, 2000. PNTR paved

767-554: A number of industries including most topically with online travel agents. However the regulatory tide in the EU appears to be turning against the use of these clauses. In a number of recent EU cases in the UK and Germany, MFNs have been condemned when used by companies with significant market power. Startups with most favoured nation (MFN) clause in agreements with their investors are called most favoured nation startups. The clause intends to protect

826-550: A particular good or service at a lower marginal and opportunity cost over another. Comparative advantage was first described by David Ricardo who explained it in his 1817 book On the Principles of Political Economy and Taxation in an example involving England and Portugal. In Portugal, it is possible to produce both wine and cloth with less labour than it would take to produce the same quantities in England. However,

885-473: Is a direct link between the dynamics of macro- and micro-economic parameters such as the evolution of industrial clusters and the GDP's temporal and spatial dynamics. Specifically, the dynamic approach analytically described the main features of the theory of competition summarized by Michael Porter , stating that industrial clusters evolve from initial entities gradually expanding within their geographic proximity. It

944-554: Is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase. Economies of scale is also a justification for economic integration, since some economies of scale may require a larger market than is possible within a particular country — for example, it would not be efficient for Liechtenstein to have its own car maker, if they would only sell to their local market. A lone car maker may be profitable, however, if they export cars to global markets in addition to selling to

1003-416: Is a non-discriminatory trade policy as it ensures equal trading among all WTO member nations rather than exclusive trading privileges. The earliest form of the most favoured nation status can be found as early as the 11th century. Today's concept of the most favoured nation status starts to appear in the 18th century, when the division of conditional and unconditional most favoured nation status also began. In

1062-451: Is also included in most bilateral investment treaties concluded between capital exporting and capital importing countries after World War II. Trade experts consider MFN clauses to have the following benefits: As MFN clauses promote non-discrimination among countries, they also tend to promote the objective of free trade in general. GATT members recognized in principle that the "most favoured nation" rule should be relaxed to accommodate

1121-488: Is called foreign direct investment (FDI). BITs are established through trade pacts . A nineteenth-century forerunner of the BIT is the "friendship, commerce and navigation treaty" (FCN). This kind of treaty came in to prominence after World Wars when the developed countries wanted to guard their investments in developing countries against expropriation. Most BITs grant investments—made by an investor of one Contracting State in

1180-438: Is certain freedom-of-emigration requirements (better known as the Jackson–Vanik amendment ). The act authorizes the president to waive a country's full compliance with Jackson–Vanik under specified conditions, and this must be renewed by June 3 of each year. Once the president does so, the waiver is automatic unless Congress passes (and avoids or overturns a presidential veto of) a disapproval resolution. MFN/NTR status for China,

1239-428: Is concerned, each member country has indicated the same services in its schedule of services commitments, as notified to the WTO. A most favoured nation clause (also called a most favoured customer clause or most favoured licensee clause ) is a contract provision in which a seller (or licensor) agrees to give the buyer (or licensee) the best terms it makes available to any other buyer (or licensee). In some contexts,

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1298-469: Is one of the cornerstones of WTO trade law . "Most favoured nation" relationships extend reciprocal bilateral relationships following both the General Agreement on Tariffs and Trade (GATT) and WTO norms of reciprocity and non-discrimination. In bilateral reciprocal relationships a particular privilege granted by one party only extends to other parties who reciprocate that privilege, while in

1357-550: The 2019 Pulwama attack that killed over 40 CRPF personnel, India withdrew the MFN status that it had accorded to Pakistan. In March 2022, in response to the 2022 Russian invasion of Ukraine , the G7 countries resolved jointly to withdraw 'most favoured nation' status from Russia and to impose punitive tariffs . In a statement, the group declared that "Russia cannot grossly violate international law and expect to benefit from being part of

1416-755: The Commercial Treaty of 1858 , which signalled the opening of the Japanese market. Since 1998, the term normal trade relations (NTR) has replaced most favoured nation in all U.S. statutes. This change was included in section 5003 of the Internal Revenue Service Restructuring and Reform Act of 1998 (P.L. 105-206). However, Title IV of the Trade Act of 1974 (P.L. 93-618) established conditions on U.S. MFN/NTR tariff treatment to certain non-market economies, one of which

1475-708: The British Empire. The European Economic Community was created to integrate France and Germany's economies to the point that they would find it impossible to go to war with each other. Among the requirements for successful development of economic integration are "permanency" in its evolution (a gradual expansion and over time a higher degree of economic/political unification); "a formula for sharing joint revenues" (customs duties, licensing etc.) between member states (e.g., per capita); "a process for adopting decisions" both economically and politically; and "a will to make concessions" between developed and developing states of

1534-469: The FTA there is a rule of certificate of origin for the goods originating from the territory of a member state of an FTA. A "customs union" introduces unified tariffs on the exterior borders of the union (CET, common external tariffs). A "monetary union" introduces a shared currency. A "common market" add to a FTA the free movement of services, capital and labor. An "economic union" combines customs union with

1593-506: The Korean kingdom Joseon was compelled by the United States to give it most favored nation status. After World War II , tariff and trade agreements were negotiated simultaneously by all interested parties through the General Agreement on Tariffs and Trade (GATT), which ultimately resulted in the World Trade Organization in 1995. The WTO requires members to grant one another "most favoured nation" status. A "most favoured nation" clause

1652-522: The MFN standard." This general principle, however, is not absolute. The current EU competition law position is that MFN clauses will infringe Article 101(i) if in the individual circumstances of the case result in an appreciable adverse effect on competition in the European Union. This is likely to happen when the parties to the agreement have substantial market power. It is recognised by EU courts and regulators that such clauses are widely used in

1711-484: The Russian Federation and Moldova with Magnitsky Act on December 14, 2012. In 1998, the "most favoured nation status" in the United States was renamed "permanent normal trade relations" (NTR) as all but a handful of countries had this status already. The U.S. gives preferential treatment to some of its trading partners without this status, based on the U.S. Supreme Court interpretation of MFN principle as

1770-453: The WTO. A country which provides MFN status to another country has to provide concessions, privileges, and immunity in trade agreements. It is the first clause in the GATT. Under rules of WTO, a member country is not allowed to discriminate between trade partners and if a special status is granted to one trade partner, the country is required to extend it to all members of WTO. In a nutshell, MFN

1829-624: The agreement or schedule notified to the WTO by that member country. Pursuant to that provision, India has extended MFN status for goods to most member countries of WTO. Within the South Asian Association for Regional Cooperation (SAARC), Bangladesh , Maldives , Nepal , Pakistan and Sri Lanka are members of the WTO and all excepting Pakistan have extended MFN status to India, which had extended MFN status to all SAARC countries. In 2019, India revoked its MFN status towards Pakistan . So far as exception to MFN status (if any)

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1888-485: The auspices of the International Centre for Settlement of Investment Disputes (ICSID), rather than suing the host State in its own courts. This process is called investor-state dispute settlement (ISDS). The world's first BIT was signed on November 25, 1959 between Pakistan and Germany . There are currently more than 2500 BITs in force, involving most countries in the world. and in recent years,

1947-468: The bank with many multi-currency instruments applied. Engine for such fast and dramatic changes was insufficiency of global capital, while one has to mention obvious large political discrepancies witnessed in 2014–2015. Global economy has to overcome this by easing the moves of capital and labor, while this is impossible unless the states will find common point of views in resolving cultural and politic differences which pushed it so far as of now. In economics

2006-421: The best option is free trade , with free competition and no trade barriers whatsoever. Free trade is treated as an idealistic option, and although realized within certain developed states, economic integration has been thought of as the "second best" option for global trade where barriers to full free trade exist. Economic integration is meant in turn to lead to lower prices for distributors and consumers with

2065-489: The dynamics of trade creation and trade diversion effects, the Pareto efficiency of factors (labor, capital) and value added, mathematically was introduced by Ravshanbek Dalimov. This provided an interdisciplinary approach to the previously static theory of international economic integration, showing what effects take place due to economic integration, as well as enabling the results of the non-linear sciences to be applied to

2124-399: The dynamics of international economic integration. Equations describing: were successfully applied towards: The straightforward conclusion from the findings is that one may use the accumulated knowledge of the exact and natural sciences (physics, biodynamics, and chemical kinetics) and apply them towards the analysis and forecasting of economic dynamics. Dynamic analysis has started with

2183-645: The early days of international trade , "most favoured nation" status was usually used on a dual-party, state-to-state basis. A nation could enter into a "most favoured nation" treaty with another nation. In the Treaty of Madrid (1667) , Spain granted England "most favoured nation" trading status. With the Jay Treaty in 1794, the US also granted the same to Britain. In the Joseon–United States Treaty of 1882 ,

2242-456: The effort to reform substantive standards of investment protection, states have sought to introduce the right to regulate into their new BITs. A BIT may also provide for lists of excluded industries which the parties agree will not be covered by the BIT. BITs give rights to investors, but give obligations only to States. Whilst preliminary objections by states are becoming more common in cases instituted under BITs, NGOs have spoken against

2301-441: The first investors, so the later investors do not get better terms than them. This device is promoted by American early stage accelerator, Y Combinator . [REDACTED] World portal Bilateral Investment Treaty A bilateral investment treaty ( BIT ) is an agreement establishing the terms and conditions for private investment by nationals and companies of one state in another state. This type of investment

2360-430: The goal of increasing the level of welfare, while leading to an increase of economic productivity of the states. There are economic as well as political reasons why nations pursue economic integration. The economic rationale for the increase of trade between member states of economic unions rests on the supposed productivity gains from integration. This is one of the reasons for the development of economic integration on

2419-597: The increasing global relationships of culture , people, and economic activity. With economics crisis started in 2008 the global economy has started to realize quite a few initiatives on regional level. It is unification between the EU and US, expansion of Eurasian Economic Community (now Eurasia Economic Union) by Armenia and Kyrgyzstan. It is also the creation of BRICS with the bank of its members, and notably high motivation of creating competitive economic structures within Shanghai Organization, also creating

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2478-504: The international economic order". In the 1990s, continued "most favored nation" status for the People's Republic of China by the United States created controversy in the latter because of its sales of sensitive military technology and China's serious and continuous persecution of human rights . China's MFN status was made permanent on December 27, 2001. All of the former Soviet states , including Russia, were granted MFN status in 1996. On

2537-400: The local market. Besides these economic reasons, the primary reasons why economic integration has been pursued in practise are largely political. The Zollverein or German Customs Union of 1867 paved the way for partial German unification under Prussian leadership in 1871. "Imperial free trade" was (unsuccessfully) proposed in the late 19th century to strengthen the loosening ties within

2596-407: The members while maintaining tariff walls between member nations and the rest of the world. Trade agreements usually allow for exceptions to allow for regional economic integration . WTO rules allow any country to revoke the MFN status that it had previously accorded to another: in particular, Article 21 (National Security) allows it to do so without further explanation. In February 2019, following

2655-580: The needs of developing countries , and the UN Conference on Trade and Development (established in 1964) has sought to extend preferential treatment to the exports of the developing countries. Another exception to the "most favoured nation" principle has been posed by regional trade blocs such as the European Union and the North American Free Trade Agreement (NAFTA), which have lowered or eliminated tariffs among

2714-503: The number of bilateral investment treaties and preferential trade agreements , in particular, has grown at a torrid pace; practically every country is a member of at least one. Influential capital exporting states usually negotiate BITs on the basis of their own "model" texts (such as the Indian or U.S. model BIT). Environmental provisions have also become increasingly common in international investment agreements, like BITs. As part of

2773-559: The relative costs of producing those two goods are different in the two countries. In England, it is very hard to produce wine and only moderately difficult to produce cloth. Both are easy to produce in Portugal. Therefore, while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. Conversely, England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at

2832-556: The state cannot use contractual mechanisms to avoid its MFN treatment obligations with other countries. Unlike the relationship among states where a nation accorded an MFN status cannot be treated less advantageously than another, the host nation does not breach MFN treatment if it provides different privileges to different investors. The United Nations Conference on Trade and Development clarified this when it stated that "a host country cannot be obliged to enter into an individual investment contract" and that "freedom of contract prevails over

2891-492: The terms introduced for the change of interregional flow of goods caused by changes in customs tariffs due to the creation of an economic union. He considered trade flows between two states prior and after their unification, and compared them with the rest of the world. His findings became and still are the foundation of the theory of economic integration. The next attempts to enlarge the static analysis towards three states+world (Lipsey, et al.) were not as successful. The basics of

2950-430: The territory of the other—a number of guarantees, which typically include fair and equitable treatment , protection from expropriation, free transfer of means and full protection and security. The distinctive feature of many BITs is that they allow for an alternative dispute resolution mechanism, whereby an investor whose rights under the BIT have been violated could have recourse to international arbitration , often under

3009-623: The theory were summarized by the Hungarian economist Béla Balassa in the 1960s. As economic integration increases, the barriers of trade between markets diminish. Balassa believed that supranational common markets, with their free movement of economic factors across national borders, naturally generate demand for further integration, not only economically (via monetary unions) but also politically—and, thus, that economic communities naturally evolve into political unions over time. The dynamic part of international economic integration theory, such as

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3068-596: The union. A "coherence" policy is a must for the permanent development of economic unions, being also a property of the economic integration process. Historically the success of the European Coal and Steel Community opened a way for the formation of the European Economic Community (EEC) which involved much more than just the two sectors in the ECSC. So a coherence policy was implemented to use

3127-463: The use of BITs - stating that they are essentially designed to protect foreign investors and do not take into account obligations and standards to protect the environment , labour rights , social provisions or natural resources . Moreover, when such clauses are agreed upon, the formulation is legally very open-ended and often unpredictable. A counter-claim may be a way of rebalancing investment law, by allowing States to file claims against investors, as

3186-446: The use of such clauses may become commonplace, such as when online ebook retailers contract with publishers for the supply of e-books. Use of such clauses, in some contexts, may provoke concerns about anticompetitive influences and antitrust violations, while in other contexts, the influence may be viewed as procompetitive. One example where most favoured nation clauses may appear is in institutional investment advisory contracts, where if

3245-531: The value added (revenues) of entities of member states interact. The degree of economic integration can be categorized into seven stages: These differ in the degree of unification of economic policies, with the highest one being the completed economic integration of the states, which would most likely involve political integration as well. A "free trade area" (FTA) is formed when at least two states partially or fully abolish custom tariffs on their inner border. To exclude regional exploitation of zero tariffs within

3304-501: The way for China's accession to the WTO in December 2001, which provides U.S. exporters of agricultural products the opportunity to benefit from China's WTO agreements to reduce trade barriers and open its agricultural markets. As per the obligation under their World Trade Organization (WTO) treaties of accession, the member countries of WTO automatically extend most favoured nation (MFN) status to each other unless otherwise specified in

3363-408: The word integration was first employed in industrial organisation to refer to combinations of business firms through economic agreements, cartels, concerns, trusts, and mergers— horizontal integration referring to combinations of competitors, vertical integration to combinations of suppliers with customers. In the current sense of combining separate economies into larger economic regions, the use of

3422-447: Was also shown as being mathematically correct. A qualitative finding of the dynamic method is the similarity of a coherence policy of economic integration and a mixture of previously separate liquids in a retort: they finally get one colour and become one liquid. Economic space (tax, insurance and financial policies, customs tariffs, etc.) all finally become the same along with the stages of economic integration. Another important finding

3481-505: Was analytically found that the geographic expansion of industrial clusters goes along with raising their productivity and technological innovation. Domestic savings rates of the member states were observed to strive to one magnitude, and the dynamic method of forecasting this phenomenon has also been developed. Overall dynamic picture of economic integration has been found to look quite similar to unification of previously separate basins after opening intraboundary sluices, where instead of water

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