International trade law and trade theory

Purpose – The purpose of this paper is to analyze the potential for tariff reduction under the most favored‐nation (MFN) provision of international trade law as it is written, lex lata . Design/methodology/approach – The paper analyzes differences in average tariff rates applied to imports under the MFN provision of international trade law. Two empirical methods are used; an analysis of variance to estimate significant differences in tariff rates between high‐income members and least‐developed members of the World Trade Organization (WTO); and fixed‐effects regression model to determine the effect of national output on the marginal propensity to import (MPM). Findings – The paper finds that there is a significant difference in the margins of import tariffs that are applied to imports by the high income and the least‐developed members and that the MPM is significantly dependent on output for the high‐income members, but not for the least‐developed members. Practical implications – The findings indicate that international trade law must be developed with the aim of increasing national earnings capacity and not just creating enabling conditions for tariff reduction or the harmonization of municipal law with international trade law. When circumstances change in a fundamental way ( rebus sic stantibus ), WTO members must be measured in their approach to attain the law that is sought ( lex ferenda ). Originality/value – The paper argues that multilateral trade arrangements for tariff reduction and fair trade must integrate enabling conditions with arrangements for earnings capacity to increase national income and reduce tariffs.