The most-favoured-nation clause prevents one of the parties to the current agreement from further removing barriers for another country. For example, Country A could agree to reduce tariffs on certain products of Country B in exchange for reciprocal concessions. In the absence of a most-favoured-nation clause, Country A could further reduce tariffs on the same products from Country C in exchange for further concessions. Consequently, because of the tariff difference, consumers in Land A would be able to buy the products in question at a lower cost from Land C, while Country B would receive nothing for its concessions. Most-favoured-nation status means that A is required to extend the lowest existing duty on certain products to all its trading partners who enjoy such status. Therefore, if A later accepts a lower rate with C, B automatically gets the same lower rate. One of the difficulties of the WTO system has been the problem of maintaining and expanding the liberal system of world trade in recent years. Multilateral negotiations on trade liberalization are progressing very slowly and the demand for consensus among the many WTO members limits the extent to which trade reform agreements can go. As Mike Moore, a recent director-general of the WTO, said, the organization is like a car with an accelerator pedal and 140 handbrakes. While multilateral efforts have been successful in reducing tariffs on industrial goods, they have been much less successful in liberalizing trade in the agricultural, textile and clothing sectors, as well as in other sectors of international trade.
Recent negotiations, such as the Doha Development Round, have encountered problems and their ultimate success is uncertain. 24. Sopranzetti P. Overlapping free trade agreements and international trade: a network approach. Econ of the world. (2018) 41:1549-66 doi: 10.1111/twec.12599 Some countries, such as Britain in the nineteenth century and Chile and China in recent decades, have made unilateral tariff reductions – reductions made independently and without any reciprocal action by other countries. The advantage of unilateral free trade is that a country can immediately reap the benefits of free trade. Countries that remove trade barriers themselves do not need to postpone reforms as they try to convince other nations to follow suit. The benefits of such trade liberalization are considerable: several studies have shown that incomes rise faster in countries open to international trade than in countries more closed to trade. Dramatic examples of this phenomenon are the rapid growth of China after 1978 and India after 1991, which indicate when major trade reforms took place. As a result, many countries have moved away from the multilateral process to bilateral or regional trade agreements. One such agreement is the North American Free Trade Agreement (NAFTA), which entered into force in January 1994.
Under NAFTA, the United States, Canada and Mexico agreed to end all tariffs on trade in goods and reduce restrictions on trade in services and foreign investment for a decade. . . .