The “Most Favoured Nation” rule makes Britain’s exit from the EU a dangerous endeavorby Ian Dunt / January 15, 2018 / Leave a comment
Whenever they imagine life outside the European Union, Brexiters often speak dreamily about the Most Favoured Nation rule. It sounds privileged and gold-plated, like an executive lounge at the airport. In reality, it is nothing of the sort.
This is what it really means and why it makes Brexit such a dangerous endeavour.
Most Favoured Nation is a World Trade Organisation rule that says that you cannot discriminate in your tariff arrangements outside of a free trade agreement. If you want to have tariffs of ten per cent for oranges from Brazil, say, then you have to have them at the same level for the United States. Essentially, it bans favouritism. It should really be called No Most Favoured Nation.
The only way out of the straightjacket is to sign a formal free trade agreement, either with another country or a group of other countries. The European Economic Area (EEA) agreement, which the UK is currently a signatory to, is one such agreement. The EU also has (more traditional) agreements with other states, like Canada and South Korea, and will probably have one soon with Japan.
Once two partners have got a free trade agreement they can adopt whatever tariffs towards each other they like, or even eliminate them altogether. And they can do that without having to replicate them for everyone else. It’s like creating a firewall around your trading arrangement.
Some trade deals also have a Most Favoured Nation clause in them. This is another anti-discrimination initiative. It promises your partner that if you sign another trade deal with someone else on better terms, this one will be upgraded to meet it. It’s the bilateral trade equivalent of John Lewis’ price promise.
Far from being an executive lounge advantage for Brexiters, Most Favoured Nation is actually a massive problem for them. For a start, if the EU offers a deal to the UK which is better than that agreed with South Korea and Canada, it has to find a way out of its Most Favoured Nation clause with those countries. That is a problem which lawyers are going to make lots of money out of. It could even, in a worst case scenario, discourage the EU from…