MFN Exemptions Justified: Tanzania Trade in Goods under WTO

Most-favored-nation (MFN): treating other Countries equally under the WTO agreements, countries cannot normally discriminate between their trading partners. MFN is stated and explained in the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods. (GATT Art I)

GATT Article I:1 provides for WTO Members to extend MFN treatment to like products of other WTO Members regarding tariffs, regulations on exports and imports, internal taxes and charges, and internal regulations. In other words, “like” products from all WTO Members must be given the same treatment as the most advantageous treatment accorded the products of any state. As a member of World Trade Organization, Tanzania benefits from this Principle of Most Favored Nation (MFN under GATT), when it comes to Trading with other Members of WTO.

MFN principle increases efficiency in the economy. Tanzania grants MFN on imports that have provided by the most efficient supplier if the most efficient supplier is within the group of MFN. Otherwise, if the most efficient producer is outside the group of MFN  is charged higher rates of tariffs, this leads to economic costs for the importing country, which can exceed the gains from free trade. As a small (developing) country is able to participate in the advantages that larger developed countries often grant to each other, whereas on it's own, it would often not be powerful enough to negotiate such advantages.

Dar es Salaam Port

The Clause provides stabilization of the International Trading System. The MFN rule requires that favourable treatment granted to one country be immediately and unconditionally granted to all other countries. Trade restrictions, should also be applied equally to all. This increases the risk of the introduction of trade restrictions becoming a political issue, raises the costs of doing so, and therefore tends to support the liberalized status quo. By stabilizing the free trade system in this manner, MFN increases predictability and therefore increases trade and investment.

Granting MFN has domestic benefits: having one set of tariffs for all countries simplifies the rules and makes them more transparent. Assumably , if all countries in the world grant MFN status to each other, there will be no need to establish complex and costly rules of origin to determine which country a product (that may contain parts from all over the world) must be attributed to for customs purposes. However, if at least one nation lies outside the MFN alliance, then customs cannot be done away with.

Also Principle of MFN decreases the cost of maintaining the multilateral trading system . The equal treatment enforced by the MFN principle tends to be as unifying treatment at the most liberal level in trade. The establishment and maintenance of the MFN rule enables Tanzania to reduce their monitoring and negotiation costs for disadvantageous treatment. In short, the most-favored-nation rule has the effect of reducing the cost of maintaining the free trade system

GATT members acknowledge in principle that the Most Favored Nation rule should be relaxed to accommodate the needs of developing countries like Tanzania, and the UN Conference on Trade and Development (established in 1964) has sought to extend preferential treatment to the exports of the developing countries.

The GATT requirements for Most Favored Nation treatment and reciprocity of obligations indicates that What will help development depends on explicit or implicit assumptions about what 'development' is and about whether and how policy and trade can influence this. It is also influenced by perceptions about the current characteristics of 'developing countries’. Through this most of Tanzania’s current exports face no customs duties, mostly because of either zero or low MFN rates set by the importing countries on these products, because Tanzanian exporters take advantage of preferential access.

Despite being a Member of WTO, Tanzania is a member of other regional integrations of East African Community (EAC), Southern Africa Development Community SADC. Tanzania maintains the conditions in Customs Union without violating the rules on tariffs in WTO. Under GATT Article XXIV Regional integration through customs unions or free trade areas liberalizes trade among countries within the regions, while maintaining trade barriers with countries outside the region or regions. Regional integration therefore may lead to results that are contrary to the MFN principle because countries inside and outside the region are treated differently. This may have a negative effect on countries outside the region, and is at odds with the liberalization of trade.

GATT 1994 imposes no obligation on Members benefiting from a reduction of duties consequent upon the formation of a customs union, or an interim agreement leading to the formation of a customs union, to provide compensatory adjustment to its constituents.

GATT Article XX of General exceptions, exempts measures from being considered WTO violations based on domestic policy goals hence, Tanzania is able to protect public morals, human, animal or plant life or health from imported products. The country imposes custom enforcement/cross-border regulations and promotes conservation of exhaustible natural resources. GATT Article XX applies to each article of GATT and serve a purpose of coordinating the rights of member countries to regulate with the trade liberalization benefits of other member countries

GATT Allow the sole discretion of a member State-the WTO security exception. Explicit National Security Exceptions National security (GATT (Article XXI) concerns frequently take the form of explicit national security exceptions written into treaties. This suggests that where a treaty contains no explicit exception, there simply is no exception because there seems to be no reason why such an exception wouldn’t simply be written into the treaty. Indeed, there is clearly little disincentive to including such an exception provision in a treaty because it will only make it easier to elicit signatures.

Overall MFN Obligation under GATT for all WTO members, it is  beneficial to trade in goods among countries; in term of fair tariffs to all Nations.