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An analysis of the MFN clause under asymmetries of cost and market structure

In: Economic Analysis of the Rules and Regulations of the World Trade Organization

Author

Listed:
  • Kamal Saggi
  • Halis Murat Yildiz

Abstract

We conduct a welfare comparison of MFN and tariff discrimination in an oligopoly model of trade between two exporting countries and one importing country. While MFN dominates tariff discrimination from a world welfare perspective when exporting countries are asymmetric with respect to either cost or market structure, such need not be the case when both types of asymmetries co-exist. In particular, when highcost exporters are merged and the cost disadvantage of the merged unit relative to competing firms is of intermediate magnitude, tariff discrimination can be welfare preferred to MFN (even when the average tariff is actually lower under MFN).

Suggested Citation

  • Kamal Saggi & Halis Murat Yildiz, 2018. "An analysis of the MFN clause under asymmetries of cost and market structure," World Scientific Book Chapters, in: Kamal Saggi (ed.), Economic Analysis of the Rules and Regulations of the World Trade Organization, chapter 2, pages 33-45, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813233058_0002
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    2. Sajal Lahiri & Peri Silva, 2016. "Potential Pareto-Improving Move Toward Most Favored Nation Tariffs," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1086-1104, April.
    3. Tsaur‐Chin Wu & Chin‐Ho Lin & Chia‐Jen Chang, 2024. "Carbon tariffs and environmental policy: Taxes versus standards," International Journal of Economic Theory, The International Society for Economic Theory, vol. 20(3), pages 269-302, September.
    4. Kangsik Choi & Seonyoung Lim, 2023. "Sequential tariffs with increasing marginal costs," Manchester School, University of Manchester, vol. 91(4), pages 336-360, July.
    5. Hong-Ren Din & Kuang-Cheng Andy Wang & Wen-Jung Liang, 2016. "MFN vs Tariff Discrimination in the Presence of Cross Ownership," Review of International Economics, Wiley Blackwell, vol. 24(5), pages 1149-1166, November.
    6. Ferrara, Ida & Missios, Paul & Murat Yildiz, Halis, 2009. "Trading rules and the environment: Does equal treatment lead to a cleaner world?," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 206-225, September.
    7. Ki‐Dong Lee & Kangsik Choi, 2024. "Uniform versus discriminatory tariffs when competition mode is endogenous," Bulletin of Economic Research, Wiley Blackwell, vol. 76(1), pages 95-120, January.
    8. Lee, Ki-Dong & Choi, Kangsik, 2023. "Optimal tariffs with endogenous vertical structure: Uniform versus discriminatory tariffs," Mathematical Social Sciences, Elsevier, vol. 124(C), pages 35-50.
    9. Pei-Cheng Liao, 2008. "International R&D Rivalry with Spillovers and Tariff Policies," Open Economies Review, Springer, vol. 19(1), pages 55-70, February.
    10. Nigar Hashimzade & Hassan Khodavaisi & Gareth Myles, 2011. "MFN Status and the Choice of Tariff Regime," Open Economies Review, Springer, vol. 22(5), pages 847-874, November.
    11. Missios, Paul & Yildiz, Halis Murat, 2006. "The role of MFN under asymmetries in environmental standards," Economics Letters, Elsevier, vol. 93(2), pages 297-304, November.
    12. Kamal Saggi & Faruk Sengul, 2018. "On the emergence of an MFN club: equal treatment in an unequal world," World Scientific Book Chapters, in: Kamal Saggi (ed.), Economic Analysis of the Rules and Regulations of the World Trade Organization, chapter 4, pages 76-108, World Scientific Publishing Co. Pte. Ltd..

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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