MOST FAVOURED NATION (MFN)
- The term "Most Favoured Nation" (MFN) refers to a principle in international trade where a country agrees to treat another country equally in terms of trade advantages. It might sound like one country is being given special treatment, but in reality, MFN status means non-discriminatory treatment — that is, the receiving country gets the same favorable terms as any other nation.
- Here’s how it works in practice: Imagine Country A has trade agreements with several countries. If Country A gives one of those countries a lower tariff rate or special access to its markets, it must extend the same benefit to all other countries it has granted MFN status to. This ensures that trade policies are fair and uniform, preventing countries from playing favorites.
- The MFN principle is a cornerstone of the World Trade Organization (WTO). All members of the WTO are automatically granted MFN status by one another, unless an exception applies (such as a free trade agreement or customs union, which are allowed under WTO rules).
- So in essence, Most Favoured Nation doesn’t mean the "most preferred" in a literal sense. Rather, it guarantees that the country will not be treated less favorably than any other country — it’s about ensuring equality in trade relationships
- India’s generic pharmaceutical sector plays a crucial role in supplying affordable medicines, not just domestically but also to countries like the United States and the United Kingdom.
- However, this industry has often been at odds with major pharmaceutical companies in developed nations. These firms contend that India’s relatively lenient intellectual property regulations put them at a disadvantage.
- This tension escalated when the U.S. placed India on its “Priority Watch List” for intellectual property concerns—an action that significantly impacts drug production—and was further reflected in an executive order signed by then-President Trump.
- Ajay Srivastava, head of the Global Trade and Research Initiative (GTRI), remarked that Trump’s policy on Most Favoured Nation (MFN) pricing should serve as a warning. As Western markets enforce stricter price controls, pharmaceutical companies may intensify their push to raise prices in countries like India to compensate.
- Although India’s pharmaceutical regulations adhere to the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the country has consistently pushed back against adopting additional protections, known as “TRIPS-plus” measures.
- These are often introduced through Free Trade Agreements (FTAs) by developed countries and include provisions like data exclusivity, automatic extensions of patent terms, stronger patent linkage mechanisms, more expansive patent eligibility, and the controversial practice of evergreening
- The Priority Watch List is part of the Special 301 Report, an annual review conducted by the United States Trade Representative (USTR). This report identifies countries that the U.S. believes do not provide adequate protection and enforcement of intellectual property rights (IPR), such as patents, copyrights, and trademarks.
- Countries placed on the Priority Watch List are considered to have serious IPR concerns that significantly affect U.S. companies or industries. While being on the list doesn’t automatically lead to penalties or sanctions, it signals strong disapproval from the U.S. and may lead to increased diplomatic pressure or trade negotiations aimed at reforming the country’s IP laws or enforcement practices.
- For example, a country like India has often been placed on this list because, from the U.S. perspective, its patent laws (especially in the pharmaceutical sector) are seen as too flexible or not fully aligned with U.S. standards.
- This includes issues like allowing generic versions of drugs to enter the market more easily, or resisting stricter IP protections such as data exclusivity and patent term extensions.
- In short, the Priority Watch List acts as a diplomatic tool that the U.S. uses to push countries toward adopting stronger IP protections that align more closely with American commercial interests
The Double Taxation Avoidance Agreement (DTAA) is a treaty between two or more countries that aims to prevent individuals and businesses from being taxed twice on the same income.
Here’s how it works in a simplified, explanatory way:
When a person or a company earns income in one country (say, Country A) but is a resident of another country (Country B), both countries may claim the right to tax that income. This can lead to double taxation, which is unfair and discourages cross-border trade and investment.
To solve this issue, countries sign a DTAA. This agreement outlines which country gets to tax what type of income, such as salaries, business profits, dividends, interest, royalties, or capital gains. The goal is to make sure the same income is not taxed twice or, if it is, that a credit or exemption is given to offset the burden.
There are two main ways DTAAs avoid double taxation:
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Exemption method – One country agrees to not tax the income at all if it’s already taxed in the other.
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Credit method – The country of residence taxes the income, but gives a credit for the tax already paid in the source country.
For example, if an Indian resident earns income in the United States, and both countries have a DTAA in place, that income won’t be taxed twice. Either India will exempt the income or allow the individual to deduct the tax already paid in the U.S. from their Indian tax liability.
Apart from avoiding double taxation, DTAAs also aim to:
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Prevent tax evasion and promote transparency.
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Encourage foreign investment by creating a more predictable and fair tax environment.
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Clearly define tax residency, which is especially useful for people or businesses with cross-border activities
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For Prelims: Current events of national and international Significance.
For Mains:General Studies II: Effect of policies and politics of developed and developing countries on India’s interests
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Previous Year Questions
1.Which of the following are the reasons for the occurrence of multi-drug resistance in microbial pathogens in India? (2019)
1. Genetic predisposition of some people 2. Taking incorrect doses of antibiotics to cure diseases 3. Using antibiotics in livestock farming 4. Multiple chronic diseases in some people Select the correct answer using the code given below. (a) 1 and 2 (b) 2 and 3 only (c) 1, 3 and 4 (d) 2, 3 and 4 Answer (b)
Multi-drug resistance in microbial pathogens arises when microorganisms such as bacteria, viruses, fungi, and parasites evolve to resist the effects of medications that were once effective against them. In India, several human practices contribute significantly to this issue. Let’s evaluate the options:
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