There is a debate in legal circles whether MFN clauses in bilateral investment treaties include only substantive rules or also procedural protections.
Exceptions allow for preferential treatment of developing countries, regional free trade areas and customs unions.
[3] In the early days of international trade, "most favoured nation" status was usually used on a dual-party, state-to-state basis.
[6]: fol.93 Another exception to the "most favoured nation" principle has been posed by regional trade blocs such as the European Union and the North American Free Trade Agreement (NAFTA), which have lowered or eliminated tariffs among the members while maintaining tariff walls between member nations and the rest of the world.
[7] In February 2019, following the 2019 Pulwama attack that killed over 40 CRPF personnel, India withdrew the MFN status that it had accorded to Pakistan.
[7] In March 2022, in response to the 2022 Russian invasion of Ukraine, the G7 countries resolved jointly to withdraw 'most favoured nation' status from Russia and to impose punitive tariffs.
[citation needed] Within the South Asian Association for Regional Cooperation (SAARC), Bangladesh, Maldives, Nepal, Pakistan and Sri Lanka are members of the WTO and all excepting Pakistan have extended MFN status to India,[citation needed] which had extended MFN status to all SAARC countries.
[11] One example where most favoured nation clauses may appear is in institutional investment advisory contracts, where if a certain number of conditions are met, one client may be entitled to the lowest fee offered to other clients with a substantially identical investment strategy and the same or lower level of assets under management.
This involves the provision of special privileges and advantages although the state cannot use contractual mechanisms to avoid its MFN treatment obligations with other countries.
It is recognised by EU courts and regulators that such clauses are widely used in a number of industries including most topically with online travel agents.
In a number of recent EU cases in the UK and Germany, MFNs have been condemned when used by companies with significant market power.