《Multi-lateral trade negotiations and the Most Favored》.pdf

Journal of International Economics 57 (2002) 151–176 /locate/econbase Multi-lateral trade negotiations and the Most Favored Nation clause Phillip McCalman* Department of Economics, University of California, Santa Cruz, CA 95064, USA Received 9 November 1999; received in revised form 15 August 2000; accepted 15 January 2001 Abstract This paper considers the interaction between private information and the Most Favored Nation clause in trade negotiations. It demonstrates that by aggregating uncertainty over a number of trading partners, the Most Favored Nation clause may offer a welfare improvement over a set of bilateral trade negotiations. This improvement is shown to be most pronounced when a large number of countries are involved in negotiations.  2002 Elsevier Science B.V. All rights reserved. Keywords : Economic integration; Private information; Most Favored Nation JEL classification : F13; F15 1. Introduction The recent proliferation of preferential trade agreements (PTAs) has renewed the debate over their desirability, especially in relation to efforts to liberalize at the multi-lateral level. A number of papers have now documented the potentially negative impact that PTAs may have on the multi-lateral process of trade 1 negotiations. However, one issue that has been neglected in this literature has *Tel.: 1-831-459-4381; fax: 1-831-459-5077. E-mail address: mccalman@ (P. McCalman). 1See Bhagwati and Panagariya (1996) for a recent survey, along with Levy (1997), Krishna (1998), Bagwell and Staiger