National treatment and most-favoured-nation treatment in international trade: what to consider

At the international level, trade relations between states are governed by bilateral trade treaties and agreements that establish the legal framework for commerce, as well as the treatment of foreign goods, services, capital, individuals and legal entities in the country.

Within the framework of international economic relations, national treatment regulates the extension of national status to foreign companies. Thus, foreign legal entities or individuals operating under national treatment in a given state have all the same legal advantages as national enterprises, legal entities and individuals of the given country. These advantages generally refer to tax advantages and the possibility of not paying import taxes. Therefore, foreign and domestic individuals and entities are placed in an equal position.

The principle of national treatment may be established both in the domestic legislation and in international treaties; it may be applied both to the economic activities of foreign persons and to foreign-made goods.

The current problem of discrimination between states is solved by the application of the most-favoured-nation treatment. The essence of the most-favoured-nation treatment is that foreign organisations and foreign nationals are not put in an equal position with domestic citizens and legal entities, but with each other.

This principle constitutes the norm of non-discrimination and can only be provided for in an international treaty. It is a norm of frontier regime, equally important for trade and investment in admitting goods and investments into the country.

Russia’s treaty practice in trade relations with other states is based on the MFN principle. NT is applied in trade treaties in limited cases, e.g. on certain issues of merchant shipping. In addition, NT is applied in treaties on legal assistance and social security, including judicial protection as well as the granting of labour and other rights. The granting of national treatment to foreigners in the Russian Federation on the basis of multilateral agreements in the field of copyright and rights to inventions and trademarks has gained great practical importance.

There are some exceptions to national treatment:

  • giving foreign producers less favourable conditions than local ones;
  • giving price advantages to local producers;
  • domestic economic policy instruments that discriminate in the domestic market against foreign service producers as compared to local ones;
  • efforts to liberalize international trade in services.

To conclude, we would like to note that in modern trade and economic practice, there is often a cumulation of both norms – MFN treatment and NT. When establishing trade relations with a foreign country, one important factor to consider is its domestic policy towards foreign companies, as well as the principles and conditions of economic and trade relations in the foreign market.


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