What is the most-favored nation principle? How do regional trade agreements violate the most-favored nation principle of the GATT/WTO?

The Most-Favored Nation (MFN) principle is a cornerstone of the multilateral trading system conceived after World War II. It is a principle of non-discrimination which states that any advantage, favor, privilege or immunity granted by a WTO member to the products of any other country must be accorded immediately and unconditionally to the like products of all other WTO members. In other words, if a country improves the benefits that it gives to one trading partner, it has to give the same "best" treatment to all the other WTO members so that they all remain "most-favored".

Regional Trade Agreements (RTAs) can be seen as a violation of the MFN principle because they discriminate between member countries and non-member countries. In an RTA, countries agree to grant each other preferential treatment, such as lower tariffs or higher import quotas, which are not extended to other WTO members. This is in direct contrast to the MFN principle, which requires that all WTO members be treated equally.

However, the WTO recognizes the role of RTAs as a stepping stone to more global trade liberalization. Therefore, it allows the formation of RTAs under certain conditions, such as the requirement that RTAs should cover substantially all trade and not just certain sectors, and that they should not raise barriers to trade with non-member countries.