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Foreign Investment - Essay Example
The Most-Favoured-Nation (MFN) clause indicates that the preferences conferred to a foreign investor must also be conferred to all other foreign investors. This signifies that a foreign investor be conferred the highest standard of treatment obtainable from any foreign country (Fietta 2005).
MFN clause has been beneficial in generating parity in trading opportunity among states by converting bilateral accords into multilateral agreements. As a matter of public international law, MFN clause provides the sovereign equality of states relative to trading policy. While as a tool for economic policy, it establishes a basis for international treaty in relation to competitive dealings.2
The establishment of Most-Favoured-Nation dealing has quite a long record. Before the GATT (General Agreement on Tariffs and Trade), bilateral trade agreements often include an MFN clause, and by itself contributed a great deal to trade liberalization. Nevertheless, various measures in the '30s were carried out that constrained the operation of the MFN initiative. These measures were viewed to result in the splitting up of the world economy into trade blocs.3 Realizing from this mistaken view, the unqualified MFN clause on a multilateral footing was subsequently integrated in the GATT following the ending of World War II, and has led to trade stability all over the world.
The dual purpose of the MFN principle is removing the econ ...