The role of MFN under asymmetries in environmental standards

Abstract

We critically examine the implications of the most favored nation (MFN) clause under asymmetric environmental standards. Using an oligopolistic intra-industry trade model, we show that environmentally bene…cial trade diversion and higher world welfare obtain under tari¤ discrimination relative to MFN.

Trading rules and the environment: Does equal treatment lead to a cleaner world?

“…This is consistent with the result for intra-industry trade and exogenous standards in Ref. [23]. The second part of the proposition tells us that, for exogenously determined abatement standards, the adoption of equal treatment does not lead to any trade liberalization effect since total protection under discrimination and equal treatment is the same.…”