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The most-favored nation rule in principle and practice: Discrimination in the GATT

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  • Joanne Gowa

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  • Raymond Hicks

    ()

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    Abstract

    The conflicts of interest that prevailed between the great powers in the wake of the First World War eviscerated their ability to respond collectively to the advent of the Great Depression. Instead, each turned to discriminatory trade barriers and trade blocs to try to revive domestic output. Persuaded that trade discrimination exacerbated the political tensions that erupted in World War II, policy makers constructed a postwar economic order that institutionalized nondiscrimination. Thus, Article 1 of the charter of the General Agreement on Tariffs and Trade (GATT) mandates most-favored nation (MFN) treatment. We argue here that the MFN clause itself encouraged the adoption of practices and policies that actually recreated discrimination. In particular, we argue, developing countries, long regarded as victims of discrimination, institutionalized it in their negotiations with each other. We examine two developing country PTAs that included about 80 percent of all developing-country GATT members by output (the Global System of Trade Preferences and the Protocol Relating to Trade Negotiations). We show that as in the GATT writ large, their patterns of tariff cuts and trade expansion were highly skewed toward a small number of their largest members. In trying to avoid discrimination, policy makers actually encouraged its de facto adoption. Copyright Springer Science+Business Media, LLC 2012

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    File URL: http://hdl.handle.net/10.1007/s11558-011-9141-6
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    Bibliographic Info

    Article provided by Springer in its journal The Review of International Organizations.

    Volume (Year): 7 (2012)
    Issue (Month): 3 (September)
    Pages: 247-266

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    Handle: RePEc:spr:revint:v:7:y:2012:i:3:p:247-266

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    Web page: http://www.springer.com/business/sociology/journal/11558

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    Keywords: GATT; PTAs; Developing countries; Most favored nation; Principal supplier;

    References

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    1. Kyle Bagwell & Robert W. Staiger, 2006. "What Do Trade Negotiators Negotiate About? Empirical Evidence from the World Trade Organization," NBER Working Papers 12727, National Bureau of Economic Research, Inc.
    2. Arvind Subramanian & Shang-Jin Wei, 2003. "The WTO Promotes Trade, Strongly But Unevenly," NBER Working Papers 10024, National Bureau of Economic Research, Inc.
    3. Rodney D. Ludema & Anna Maria Mayda, 2008. "Do Countries Free Ride on MFN?," Development Working Papers 254, Centro Studi Luca d\'Agliano, University of Milano.
    4. Michael Tomz & Judith L. Goldstein & Douglas Rivers, 2007. "Do We Really Know That the WTO Increases Trade? Comment," American Economic Review, American Economic Association, vol. 97(5), pages 2005-2018, December.
    5. Estevadeordal, Antoni & Suominen, Kati, 2009. "The Sovereign Remedy?: Trade Agreements in a Globalizing World," OUP Catalogue, Oxford University Press, number 9780199550159.
    6. Eicher, Theo S. & Henn, Christian, 2011. "In search of WTO trade effects: Preferential trade agreements promote trade strongly, but unevenly," Journal of International Economics, Elsevier, vol. 83(2), pages 137-153, March.
    7. Rose, Andrew K., 2004. "Do WTO members have more liberal trade policy?," Journal of International Economics, Elsevier, vol. 63(2), pages 209-235, July.
    8. Christian Broda & Nuno Limao & David E. Weinstein, 2008. "Optimal Tariffs and Market Power: The Evidence," American Economic Review, American Economic Association, vol. 98(5), pages 2032-65, December.
    9. Chase, Kerry, 2006. "Multilateralism compromised: the mysterious origins of GATT Article XXIV," World Trade Review, Cambridge University Press, vol. 5(01), pages 1-30, March.
    10. Peter Egger & Michael Pfaffermayr, 2003. "The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects," Empirical Economics, Springer, vol. 28(3), pages 571-580, July.
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