Legal Definitions - National treatment

National treatment is a core principle in international economic law, particularly in trade and investment agreements. It mandates that a country must treat foreign investors, goods, and services no less favorably than it treats its own domestic investors, goods, and services in similar circumstances.

This principle is frequently found in international agreements, such as those of the World Trade Organization (WTO) and in Bilateral Investment Treaties (BITs). A BIT is an agreement between two countries that establishes the terms and conditions for private investment by individuals and companies of one country in the other country. The essence of national treatment is to prevent discrimination against foreign entities simply because of their foreign origin, ensuring a level playing field.

Here are some examples illustrating the concept of national treatment:

• Business Licensing and Permits: Imagine a company based in Country A wants to establish a new software development office in Country B. Under a national treatment obligation, Country B must require the foreign company to meet the same licensing standards, regulatory approvals, and operational permits as it would for a domestic company from Country B seeking to open a similar office. Country B cannot impose additional fees, longer waiting periods, or more stringent requirements on the foreign company solely because it is foreign.

  This illustrates national treatment by ensuring that foreign businesses face the same administrative and regulatory hurdles as local businesses, preventing discriminatory barriers to market entry and operation.

• Taxation of Goods: Consider Country X, which imports high-quality textiles from Country Y. Country X also has its own domestic textile industry. If Country X imposes a 5% sales tax on all domestically produced textiles sold within its borders, then, under national treatment, it must also apply the same 5% sales tax to the imported textiles from Country Y once they have cleared customs and entered the domestic market. Country X cannot impose a higher tax, such as 8%, on the imported textiles to make them more expensive and less competitive than local products.

  This demonstrates national treatment by ensuring that imported products are not subjected to higher internal taxes or charges than equivalent domestic products, promoting fair competition within the market.

• Access to Government Subsidies: Suppose the government of Country Z offers financial subsidies or grants to its domestic agricultural businesses to help them adopt new, environmentally friendly farming techniques. If Country Z has committed to national treatment in its investment agreements, it must make these same subsidies or grants available to foreign-owned agricultural businesses operating within its territory, provided they meet the same eligibility criteria as domestic businesses. It cannot exclude foreign-owned farms from accessing these benefits simply because their parent company is based abroad.

  This example shows national treatment by ensuring that foreign enterprises have equal access to government support programs and incentives, preventing favoritism towards domestic firms in the allocation of public resources.