Legal Definitions - Most Favored Nation

Most Favored Nation is a clause that is often included in bilateral investment treaties. It requires a host state to treat all of its trading partners equally. This means that if the host state lowers a tariff for one trading partner, it must lower it for all trading partners.

For example, if Country A has a trade agreement with Country B that includes a Most Favored Nation clause, and Country A lowers its tariffs for Country C, then Country A must also lower its tariffs for Country B.

Most major trading states are members of the World Trade Organization (WTO), which has trade agreements that have superseded many preexisting bilateral investment treaties. However, there are still legal issues between the operation of the WTO basic treaty and existing BITs.

The Most Favored Nation clause ensures that all trading partners are treated equally, which promotes fair trade practices and prevents discrimination against certain countries.