Title: A Game-Theoretic Analysis of China's WTO Accession
Reference Number: 1045
Publication Date: September 2002
JEL Classifcation: D0, F1

Eric W. Bond
Pennsylvania State University

Stephen Ching
The University of Hong Kong

Edwin L.C. Lai
City University of Hong Kong

This paper studies the determination of split of gains among the negotiating parties (member countries and the acceding country) in a WTO accession negotiation using a sequential bargaining model. In particular, we are interested in the effect of the most-favored-nation (MFN) principle on the negotiation outcome. The MFN principle says that any tariff reduction offered by the applicant for accession has to be automatically granted to all existing members. This implies that any deal that an applicant, such as China, makes with a member can be made more unfavorable to China in subsequent negotiations. On the other hand, since China has the foresight that giving up each dollar to one country means giving up many more dollars, this would harden China's bargaining position. Resorting to intuition alone, therefore, it is not clear whether China would benefit or be disadvantaged by the existence of MFN. Using the model, however, we find unambiguously that China's share of surplus is more when MFN is in place.

Published in Pacific Economic Review 8:2, 2003, pp. 117-125.

Key words: WTO, accession, negotiation

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Last modified: 01/23/2007