IDEAS home Printed from https://ideas.repec.org/p/ags/uitcoe/15853.html
   My bibliography  Save this paper

The Rise and Fall of the Most-Favored-Nation Clause

Author

Listed:
  • Cebi, Pinar
  • Ludema, Rodney

Abstract

The United States and other industrialized countries were once strong proponents of generalized, unconditional Most-Favored-Nation (MFN) treatment as a fundamental GATT rule. Today that support is much diminished, and industrialized countries routinely adopt policies that circumvent MFN. This paper develops a model of multilateral trade negotiations to illustrate some of the trade-offs large countries face in adopting MFN and how these trade-offs may change over time. Two large countries (the North) negotiate a trade agreement with each other and with a continuum of smaller countries (the South). Under unconditional MFN, northern tariff reductions must be extended to all southern countries regardless of whether or not the southern countries agree to reciprocate. This raises the cost to the North of inducing southern countries to join the agreement. On the other hand, MFN treatment, by ensuring access to the northern market, induces factors of production in the South to move into the export sector. This increases the gains to trade and also reduces political opposition to trade liberalization in southern countries, thereby reducing the cost to the North of inducing them to join the agreement. Over time, as capital accumulates in the export sectors of the South, the cost of MFN to the North rises relative to the benefits. Thus, the very success of MFN in promoting comparative advantage may cause the North to switch from being a net beneficiary to a net loser from MFN over the course to time.

Suggested Citation

  • Cebi, Pinar & Ludema, Rodney, 2002. "The Rise and Fall of the Most-Favored-Nation Clause," Working Papers 15853, United States International Trade Commission, Office of Economics.
  • Handle: RePEc:ags:uitcoe:15853
    DOI: 10.22004/ag.econ.15853
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/15853/files/wp02006b.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.15853?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    2. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    3. Robert C. Feenstra & Tracy R. Lewis, 1991. "Negotiated Trade Restrictions with Private Political Pressure," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1287-1307.
    4. Bagwell,K. & Staiger,R.W., 1999. "Multilateral trade negotiations, bilateral opportunism and the rules of GATT," Working papers 6, Wisconsin Madison - Social Systems.
    5. Horn, Henrik & Mavroidis, Petros C., 2001. "Economic and legal aspects of the Most-Favored-Nation clause," European Journal of Political Economy, Elsevier, vol. 17(2), pages 233-279, June.
    6. Choi, Jay Pil, 1995. "Optimal tariffs and the choice of technology Discriminatory tariffs vs. the 'Most Favored Nation' clause," Journal of International Economics, Elsevier, vol. 38(1-2), pages 143-160, February.
    7. Rodney D. Ludema, 1991. "International Trade Bargaining And The Most‐Favored‐Nation Clause," Economics and Politics, Wiley Blackwell, vol. 3(1), pages 1-20, March.
    8. Coates, Daniel E. & Ludema, Rodney D., 2001. "A theory of trade policy leadership," Journal of Development Economics, Elsevier, vol. 65(1), pages 1-29, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ludema, Rodney D. & Mayda, Anna Maria, 2009. "Do countries free ride on MFN?," Journal of International Economics, Elsevier, vol. 77(2), pages 137-150, April.
    2. Lim“o, Nuno, 2002. "Are Preferential trade Agreements with Non-trade Objectives a Stumbling Block for Multilateral Liberalization?," Royal Economic Society Annual Conference 2002 129, Royal Economic Society.
    3. Nuno Limão, 2018. "Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Block for Multilateral Liberalization?," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 10, pages 283-317, World Scientific Publishing Co. Pte. Ltd..
    4. Nuno Limão, 2007. "Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Block for Multilateral Liberalization?," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 821-855.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems.
    2. Horn, Henrik & Mavroidis, Petros C., 2001. "Economic and legal aspects of the Most-Favored-Nation clause," European Journal of Political Economy, Elsevier, vol. 17(2), pages 233-279, June.
    3. Bagwell, Kyle & Staiger, Robert W., 2010. "Backward stealing and forward manipulation in the WTO," Journal of International Economics, Elsevier, vol. 82(1), pages 49-62, September.
    4. 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..
    5. Saggi, Kamal & Yildiz, Halis Murat, 2005. "The Case for MFN under Asymmetries of Cost and Market Structure," MPRA Paper 76331, University Library of Munich, Germany.
    6. Ludema, Rodney D. & Mayda, Anna Maria, 2009. "Do countries free ride on MFN?," Journal of International Economics, Elsevier, vol. 77(2), pages 137-150, April.
    7. Bagwell, Kyle & Staiger, Robert W., 2004. "Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO," Journal of International Economics, Elsevier, vol. 63(1), pages 1-29, May.
    8. Kamal Saggi, 2018. "The MFN clause, welfare, and multilateral cooperation between countries of unequal size," World Scientific Book Chapters, in: Kamal Saggi (ed.), Economic Analysis of the Rules and Regulations of the World Trade Organization, chapter 14, pages 312-323, World Scientific Publishing Co. Pte. Ltd..
    9. Pravin Krishna & Devashish Mitra, 2016. "Reciprocated unilateralism in trade policy," World Scientific Book Chapters, in: The Political Economy of Trade Policy Theory, Evidence and Applications, chapter 3, pages 37-63, World Scientific Publishing Co. Pte. Ltd..
    10. Saggi, Kamal & Wong, Woan Foong & Yildiz, Halis Murat, 2017. "Preferential Trade Agreements and Rules of the Multilateral Trading System," MPRA Paper 76330, University Library of Munich, Germany.
    11. Tobias D. Ketterer, 2016. "EU Anti-dumping and Tariff Cuts: Trade Policy Substitution?," The World Economy, Wiley Blackwell, vol. 39(5), pages 576-596, May.
    12. Kyle Bagwell & Robert W. Staiger, 2012. "Profit Shifting And Trade Agreements In Imperfectly Competitive Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1067-1104, November.
    13. Bagwell,K. & Staiger,R.W., 1999. "Multilateral trade negotiations, bilateral opportunism and the rules of GATT," Working papers 6, Wisconsin Madison - Social Systems.
    14. Rodney D. Ludema & Anna Maria Mayda, 2010. "Do Terms-of-Trade Effects Matter for Trade Agreements? Evidence from WTO Countries," Development Working Papers 293, Centro Studi Luca d'Agliano, University of Milano.
    15. Philip I. Levy, 2003. "Non-Tariff Barriers as a Test of Political Economy Theories," Working Papers 852, Economic Growth Center, Yale University.
    16. Conconi, Paola & Perroni, Carlo, 2015. "Special and Differential Treatment of Developing Countries in the WTO," World Trade Review, Cambridge University Press, vol. 14(1), pages 67-86, January.
    17. 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.
    18. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, University Library of Munich, Germany.
    19. Gal Hochman, 2008. "Trade negotiations, domestic policies, and the Most Favored Nation clause," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 781-795, August.
    20. Paola Conconi & Carlo Perroni, 2012. "Conditional versus unconditional trade concessions for developing countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(2), pages 613-631, May.

    More about this item

    Keywords

    International Relations/Trade;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:uitcoe:15853. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/itcgvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.