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On the emergence of an MFN club: equal treatment in an unequal world

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  • Kamal Saggi
  • Faruk Sengul

Abstract

Motivated by GATT, we endogenize the formation of a club whose members have to abide by the MFN principle of non-discrimination. The underlying model is that of oligopolistic intraindustry trade. While an MFN club does not alter average tariff levels across countries, it increases aggregate world welfare; makes non-members worse off; and can immiserize its high cost members. These results imply that (i) core WTO rules such as MFN are valuable even if multilateral negotiations deliver limited trade liberalization and (ii) the distributional effects of MFN maybe one reason why developing countries have been granted Special and Differential treatment at the WTO.

Suggested Citation

  • Kamal Saggi & Faruk Sengul, 2009. "On the emergence of an MFN club: equal treatment in an unequal world," Canadian Journal of Economics, Canadian Economics Association, vol. 42(1), pages 267-299, February.
  • Handle: RePEc:cje:issued:v:42:y:2009:i:1:p:267-299
    DOI: 10.1111/j.1540-5982.2008.01508.x
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    Cited by:

    1. Emanuel Ornelas, 2016. "Special and Differential Treatment for Developing Countries," CESifo Working Paper Series 5823, CESifo.
    2. Bernard M. Hoekman & Petros C. Mavroidis, 2016. "MFN Clubs and Scheduling Additional Commitments in the GATT: Learning from the GATS," RSCAS Working Papers 2016/06, European University Institute.
    3. Florian Freund, 2021. "The role of coalitions at international tariff negotiations: a CGE perspective," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(3), pages 583-601, August.
    4. Euan MacMillan, 2014. "Explaining rising regionalism and failing multilateralism: consensus decision-making and expanding WTO membership," International Economics and Economic Policy, Springer, vol. 11(4), pages 599-617, December.

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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration

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