Normal-Trade-Relations (Most-Favored-Nation) Policy of the United States

Publication Date: December 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Trade

Type:

Abstract:

In international trade, the term most-favored-nation (MFN) treatment has a meaning at variance with what it appears to mean: the expression means equal -- rather than exclusively favorable -- treatment and is often used interchangeably with "nondiscriminatory." To make this distinction clearer and avoid a possibly misleading interpretation of the most-favored-nation term, legislation was enacted in 1998 to replace it in U.S. law with the term "normal trade relations," or NTR. In this report, both terms are used interchangeably with "nondiscriminatory." The United States accords general MFN treatment as a matter of international obligation as well statutory policy to all trading partners; however, MFN tariff treatment of several countries has been suspended under specific legislation. Virtually all such suspensions, initially applied to 21 countries or political entities, took place under the mandate of the Trade Agreements Extension Act of 1951, and two more under country-specific legislation. MFN tariff treatment of countries suspended under the 1951 law can be restored and maintained in effect for one-year periods by using the procedure provided under Title IV of the Trade Act of 1974 for such restoration to "nonmarket economy" (NME) countries. Under this procedure, an NME country needs to conclude with the United States a trade agreement containing a reciprocal MFN clause, and be in compliance with the criteria of the Jackson-Vanik (J-V) freedom-of-emigration provision of that act. The two countries whose MFN status was suspended by country-specific legislation could -- and did -- have it restored by Presidential action under conditions specified in the suspending law.

Trade agreements with NME countries must be approved by joint resolution, and are triennially self-renewable, but their renewal is also subject to Presidential confirmation. To maintain in force the compliance with the J-V criteria (and the MFN status), such compliance must be either determined semiannually, or waived annually, by the Secretary of State, and such determinations or waivers are annually subject to possible disapproval by joint resolution. Repeated past legislative action to disapprove some waivers, particularly those for China, has been unsuccessful and NTR treatment contingent on a waiver has invariably remained in effect. Permanent restoration of NTR status of any country generally requires specific legislation.

Of the 29 countries, today's successors of countries or areas originally subject to the 1951 suspension, 15 had their permanent NTR status restored by specific legislation (five directly and ten after a period of conditional restoration under the Jackson-Vanik amendment), one (Poland) by the President under then existing statutory authority, and one (East Germany) administratively through unification with West Germany. The status of seven of them is still temporary, subject to the determination of full-compliance with the Jackson-Vanik amendment, and of three of them under the Jackson-Vanik waiver provision. Two countries (Cuba, and North Korea) are denied NTR status altogether. The NTR status of two countries, suspended by individual legislation, has been restored permanently by Presidential action as authorized by the suspending legislation.

This report will be updated as warranted.