American Economic Review Vol. 96 No. 1 2006

National Treatment in the GATT

Henrik Horn

Institute for International Economic Studies, Stockholm University, SE-106 91 Stockholm, Sweden, Research Institute of Industrial Economics (IUI), and Centre for Economic Policy Research.

Abstract

The National Treatment (NT) clause is the first-line defense in the GATT (and in most other trade agreements) against opportunistic exploitation of the inevitable incompleteness of the agreement. This paper examines the role of NT as it applies to internal taxation under the GATT. It is shown that despite severely restricting the freedom to set internal taxes, NT may improve government welfare, but it will not completely solve the incomplete contract problem it is meant to remedy. Furthermore, it requires a high degree of economic sophistication on behalf of trade negotiators in order for this beneficial effect to materialize.

DOI

10.1257/000282806776157768

Volume

96

Issue

1

Pages

394-404

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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