Instrumentos

The use of a MFN provision or clause has a long history and its phrase was first appeared in the seventeenth century (Jackson 1989, 133). The use of the MFN provision, either conditional or unconditional seemed to be driven primarily by the importance of trading activities in the eyes of European countries as they competed against each other to develop networks of trading relationships among themselves and with other countries outside Europe. In the later centuries, it was a norm to include a MFN clause in a variety of trade arrangements, especially in various friendship, commerce and navigation treaties.

The incorporation of a MFN provision in a commercial agreement assures each party that, if other parties of the agreement enter into any other treaties with third parties which provide more favourable treatments in relation to trade with those third parties, these more favourable treatments will be automatically extended to all the parties of the first agreement. This essentially means that no other countries will be treated more favourably (Snape 1993, 274).

Nevertheless, the existence of a MFN clause in commercial treaties has always been subject to controversies. In the nineteenth century, controversies over the MFN clause occurred occasionally because some countries which had signed a treaty that included in it a MFN provision tried to derogate their MFN commitment. This especially happened in cases when these countries signed a new agreement with third parties and did not want to extend newly negotiated favorable treatments in the new agreement to the signatories of a previous treaty. In Europe, numerous examples of this kind of controversies existed during this period.

Frankfurt, one of the many German territories, in 1832 signed a commercial treaty with the UK providing for MFN treatment. As surrounding states joined the Prussian Zollverein, Frankfurt found itself increasingly isolated economically and became willing to accede to the Prussian Zollverein. In 1835, therefore, Frankfurt asked the UK for leave to abandon its promise of MFN treatment, but it was not explicitly granted by the UK. All parties concerned seemed to have taken it that in the absence of express consent from the UK Frankfurt was bound by the treaty of 1832 not to enter the Zollverein (Viner 1950, 7).

A controversy also occurred in 1867 when the Prussian Zollverein adopted a new constitution and took into its membership some additional German states. Napoleon III of France insisted, on the strength of the MFN clause in the Franco-Prussian commercial treaty of 1865, an extension to France a similar favourable treatment granted by Prussia to new Zollverein members; free entry of France’s goods to Prussia. The France claim was, however, energetically denied by Prussia.

Another controversy occurred in 1857, in connection with the “customs union treaty” between Austria and Modena. Originally, Austria had in 1852 signed with Modena a “complete” customs union treaty. But in 1857 Austria negotiated a revised arrangement provisioning for less complete tariff unification than the 1852 treaty. Meanwhile in 1851, Austria had also signed a commercial treaty with Sardinia which provided for a reciprocal MFN treatment. Under this treaty a separate article, however, exempted both countries from MFN obligations of the concessions made to the third countries if any of them form a complete customs union.

Cavour, on behalf of Sardinia, made a claim to benefit from the 1857 Austrian-Modenan treaty on the ground that the new tariff arrangements between Austria and Modena did not constitute a complete customs union and therefore was not eligible to claim exemptions from the

MFN obligations provided under the Austro-Sardinian treaty of 1851. Cavour maintained that a customs union involved a fusion of the tariff interests of two or more states. If certain conditions were not met, the resulting agreement was only a commercial treaty and not a complete customs union. He argued that four conditions must be met to constitute a complete customs union: uniformity of export and transit tariffs; free exchange of products of the unified countries; uniformity of external import tariffs and suppression of an internal tariff line; and, pooling of customs revenue and a specific formula for the allocation of customs revenue between the participating states must be established in advance. He claimed that the Austrian-Modenan arrangement failed to meet these conditions mainly because it allowed Modena to add “internal” duties to the external ones. In addition, this new agreement had three other defective points: it created separate and distinct Austrian and Modenan tariffs; it installed a tariff wall between Austria and Modena; and it failed to provide a specific method of customs revenue allocation. He therefore demanded the extension to Sardinia of all concessions granted by Austria to Modena.

De Buol, replying on the part of Austria, argued that the arrangement with Modena adequately met the conditions of a complete customs union. Foreign goods crossing the territories of either Austria or Modena to reach the other member required only one and the same customs declaration. They were subject to the same customs regulations and pay only once the rates fixed by a tariff common to both countries. As for the internal duties, which were different in the two countries, he maintained that internal arrangements between the parties had no bearing on the international character of the arrangement. Also, the special internal duties had no international bearing, nor did the method for reimbursement of the tariff revenues. He also pointed out that international law did not establish any definition of a complete customs union and history furnished too few precedents to fall back on. Therefore, to determine whether an arrangement was a complete customs union or not, it was necessary to observe the actual operation of the agreement

and whether the two countries form, in their relations with the outside world, a single customs territory. While refusing to concede the validity of the legal arguments raised by Cavour, De Buol however stated that Austria, moved by other considerations, had asked Modena to accede to the nullification of the treaty.

Since the formation of the GATT, controversies in relation to the principle of MFN emerged in a different context than the nineteenth century experiences. Throughout the post-WW2 period there have been controversies over the usefulness of conditional in comparison to unconditional MFN principles in ensuring gradual but continuous liberalization of trade among the GATT members. As opposed to unconditional MFN, which is based on non-discriminatory principle of trade policy and to be applied equally to all members, conditional MFN in essence allows GATT members to preferentially discriminate one against another.

There are basically two opposing views over the usefulness of the principle of preferential discrimination brought about by conditional MFN in the context of multilateral liberalization. Both are set in the context of domestic protectionist pressure on governments. On one hand it is argued that preferential discrimination permits countries to liberalize further (and faster) than otherwise by engaging in reciprocal reductions of barriers in agreements with like minded countries. The opposing view in contrast maintains that discrimination permits governments to raise, selectively, barriers against “troublesome” exporting countries – and thus to bow to domestic protectionist pressures – in a manner in which they could not if the barriers had to be raised against all exporters, friends as well as foes (Snape 1993, 238).

A leading advocate of the latter view was Jan Tumlir. Tumlir (1985) argued strongly that non-discrimination, unconditional MFN provides a firm constraint on protection. He maintained that the existence of an avenue to discriminate especially among sources of imports works to

weaken a government’s ability to resist protectionist pressures. He pointed out that some forms of protection which emerged in the 1970s as well as in the 1980s, even as tariffs had been falling since the GATT came into force – for example, country-specific import quotas and voluntary export restrains – could not be imposed in a system that was really non-discriminatory. Strong implementation of unconditional MFN would have prevented them.

In contrast, it is often argued against Tumlir’s position that unconditional MFN does not guarantee the development of a liberal, multilateral trading system. The liberal system in Europe started to be eroded from the early 1870s, despite unconditional MFN. French protectionists were able to claim that the Cobden-Chavalier Treaty, with its unconditional MFN provisions, was initially imposed undemocratically (by Napoleon III). Moreover if governments wish to circumvent the constraint of unconditional MFN they can do so by multiplying tariff classifications, by not renewing bilateral treaties as they expires, or by providing notice of withdrawal under the terms of the treaties (Pomfret 1988, 18).

Another position opposed to that of Tumlir is presented by those who argue that unconditional MFN is a drag on trade liberalization because it could encourage free-riding and foot-dragging. The possibility of free-riding would discourage negotiation and curb the selection of products to be covered. Foot-dragging which comes from those who already benefit from unconditional MFN provisions as well as from those who want to secure benefits without paying a price would cause some countries to refuse to negotiate at all, but conditionality could have brought them to the negotiating table. Conditional MFN and preferential discrimination brought by it then could facilitate more rapid liberalization.

Commenting on this last point, Richard Snape (1993, 279) argued that the arguments favouring conditional MFN because it could avoid the problem of free-riding and foot-dragging

frequently tend to focus on approximation and ignore the whole. He asserted that “it is difficult to envisage a world of criss-crossing, bilaterally negotiated, conditional MFN agreements, each designed to discourage free riding and foot-dragging and each therefore with limited coverage, leading to a stable and harmonious trading system, or even one with the degree of harmony and stability produced by that which we have.”