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Definition: Most Favored Nation (MFN)
Most Favored Nation (MFN) is the status given to a country, whenever a country is interested in increasing its trade with another partner country and under this the country can allow for reduced taxes in comparison to trade with other countries. Whenever a country grants MFN status to more than one country it has to maintain a level playing field for all the members in MFN.
It cannot discriminate one country from another. All the countries that are bound by the World trade Organization agreements cannot discriminate between different trading partners.
There are some exceptions to this rule also the country can discriminate against other country if the latter is trying to use unfair methods and harming the domestic industry. For Eg: India imposed a dumping tax on china in the steel imports to safeguard the domestic steel industry.
The Most Favored nation should not be confused with the Free trade agreement in which the countries trade goods freely without any imposition of taxes. India has granted the Most Favored Nation status to Vietnam and Bangladesh. Similarly USA has granted the Most Favored Nation Status to China and Vietnam.