The most favoured nation (MFN) principle is based on the idea that countries should treat all their trade partners equally—that no one country should be “more favoured.” It means no country should give special treatment to goods or services coming from one particular trading partner.
The World Trade Organization (WTO) has made the most favoured nation principle part of its rules. WTO members are not allowed to favour any one country with, for example, lower tariffs on particular products without giving all members the same benefit.
Countries should also not give preferred treatment to their own products and services—which would be known as national treatment.
More about most favoured nation
he most favoured nation principle does not include preferential tariffs under free trade agreements.
For example, Canada has a free trade agreement with Korea, and many Canadian goods imported into Korea are not charged tariffs. While Korea charges tariffs on goods from its other trading partners equally, Canada does not pay any tariffs at all because the free trade agreement overrules the most favoured nation principle. As a result, Canadian goods enjoy a competitive advantage in Korea.