NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Carlo Perroni

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NBER Working Papers and Publications

March 1998The Value of MFN Treatment
with Madanmohan Ghosh, John Whalley: w6461
We discuss most favoured nation (MFN) treatment in trade agreements, suggesting that its value to individual countries depends critically on the relevant model solution concept used to evaluate it. We analyze both rights to MFN treatment in foreign markets, and the obligation to grant MFN treatment in home markets; the heart of the post-war GATT/WTO multilateral trading system. In a traditional competitive equilibrium framework, MFN gives benefits to small countries in being able to free ride on bilateral tariff concessions exchanged between larger countries in GATT/WTO negotiating rounds. In a non-cooperative Nash equilibrium framework, MFN restrains retaliatory actions to be non-discriminatory. In a co-operative bargaining framework in which trade policies are jointly set, MFN chang...
 
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