Working Paper: CEPR ID: DP5450
Authors: Henrik Horn
Abstract: The National Treatment clause (NT) is the first-line defence 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.
Keywords: GATT; National Treatment; Nondiscrimination; Trade Agreement; WTO
JEL Codes: F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| National Treatment (NT) (F13) | Internal Taxation (H29) |
| National Treatment (NT) (F13) | Government Welfare (I38) |
| National Treatment (NT) (F13) | Regulation of Internal Taxation (H29) |
| Marginally Binding NT Provision (Y20) | Aggregate Government Welfare (D69) |
| Marginally Binding NT Provision (Y20) | Total Taxation of Foreign Products (H29) |
| Marginally Binding NT Provision (Y20) | Taxation of Domestic Products (H29) |
| Overly Strict NT Standards (Y20) | Overall Welfare (I31) |