Article 1 of GATT (General Agreement on Tariffs and Trade) which enunciates the most favoured nation (MFN) principle of WTO states that “any advantage, favour, privilege, or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.”
However, derogations from this MFN principle are permitted for forming FTAs under specific conditions as per the following provisions of the WTO Agreements: • Article V of GATS (General Agreement on Trade in Services) for services. The specific conditions under Article XXIV of the GATT permitting FTAs, are:
• FTA members shall not erect higher or more restrictive tariff or non-tariff barriers on trade with non-members than existed prior to the formation of the FTA.
• Elimination of tariffs and other trade restrictions be applied to “substantially all the trade between the constituent territories in products originating in such territories.”
• Elimination of duties and other trade restrictions on trade within the FTA to be accomplished “within a reasonable length of time,” meaning a period of no longer than 10 years.
Morever, the “Enabling Clause” allows developing countries to form preferential trading arrangements without adhering to the conditions under Article XXIV.