Discussion Board Forum 1:  Most Favored Nation

Discussion Board Forum 1:  Most Favored Nation

Key Term and Why I Am Interested in It

The key term I chose for this particular Discussion Board was Most Favored Nation.   During High School, I participated in Virginia’s Model United Nations competitions and never fully understood what the term meant when it came to the day to day partnerships and trade agreements between nations.  Lately, I have been following some of the international trade agreement dissolutions between the United States and other nations, and I am curious how the decisions made today by our government are forecasted to impact international trade agreements in the next few years.  Furthermore, I am curious how other alignments between nations will impact our ability to maintain a thriving economy in the eyes of the world.

Explanation of the Key Term

Trade disagreements and agreements thread the daily news headlines as nations situate and reposition their country’s stance on economics, business, and political position.  In order to understand the scope of this key phrase, I went to the World Trade Organization’s (WTO) website to find out what elements determine most-favored nation status.  First, it means countries have to level out trade agreements, so every single member has equal opportunity to trade with each other (World Trade Organization, nd).  Second, if imported and locally produced goods are in the same marketplace than both have to be given the same treatment.  Simply stated, one product or service cannot be favored over others because of where it originated.  One of the most comprehensive ways a nation can receive most-favored nation status is by lowering any barriers which prohibit the free flow of goods and services in and out of a country and making it easier for other nations to conduct business with them (World Trade Organization, nd).

Major Article Summary

The article I chose to base my keyword search from is called Brexit:  The Economics of International Disintegration. In 2016, the United Kingdom voted and decided to leave the umbrella of the European Union (EU) by 2019.  The journal article opens up by providing background information on why the United Kingdom (UK) made this decision.  Sampson (2017) posits that despite the sociopolitical volatility of such a decision, UK citizens uncomfortable with a more modernized trading partnership voted to exit the European Union.  Despite nourishment from its highest trade exports in financial services and management consultations, many voted to leave so that the UK could be reposition itself with other trade partners and develop trade agreements which did not place as many tariffs and limitations on goods and services.

Sampson (2017) states the decision to leave the EU leaves the UK with three trade options for economic stabilization.  This includes remaining part of the European Economic Area (EEA) with Norway, Liechtenstein, and Iceland; signing a free trade agreement between the EU and UK which would oversee their economic interactions; and if the UK does not reach an agreement with the EU, then they would trade under most favored nation status. Economically, Sampson posits there will be detrimental consequences for the UK, as the majority of their trades came from EU partners and they will not have that same access.  He also states it is hard to forecast the overall impact of such a decision, since there is not a precedent set from past dissolutions of trade agreements with other nations (Sampson, 2017).

The author then lays out the historical framework for why joining the EU was important for the long-term viability of the UK, and then positions his argument by hypothetically threading several models and simulations outlining the economic ramifications for leaving the protection of the EU.  Sampson (2017) surmises the UK will be substantially poorer and future trade agreements could severely hamper their ability to maintain solid footing, even if most-favored nation status governs their trading.

Sampson (2017) segues his argument for the UK maintaining economic ties with the EU by then positioning why the decision was made to leave.  Succinctly stated, voters believed the sovereignty of their national identity was being challenged and they did not like how streamlined and diffuse the nation had become.  In short, they decided they cannot be collectively democratic with the EU and maintain their own cultural identity.  The article concludes with the suggestion that the UK’s Brexit could be a sign that globalization was novel but could also be challenged and he believes the UK is just the first of many nations who will leave the EU.

Discussion

This article relates to the study of International Business, because larger entities like the European Union have tremendous impact on the economic decisions made by individual members.  Most-favored nation may provide some protection for vulnerable nations, but it also presents an interesting challenge when it is one nation trading against a collective group.  World economies and alliances established with the goal of strengthening individual nations, can have detrimental impact on a nation’s economic durability.  The UK is in a unique position to establish their own set of norms and establish newer partnerships with other nation states around the world.  I was curious about their economic stance and decision making, particularly as I consider the ramifications of the United States walking away from its own trade agreements with neighboring nations and other global entities.  Does the term most-favored nation place a nation in a more frame of reference to trade partners or does it reflect economic instability?

My research on the keyword initially pulled up over 260,000 references and I immediately recognized this was much larger than I was ready to tackle.  I simplified my search by narrowing it down to journal articles within the last year and then added in World Trade Organization as an additional keyword to search.  I was able to narrow my research down to 2,032 articles.  From there I took a macro approach to my query and focused on larger data constructs related to how nations like the United States, China, and other entities determine and conduct trade.  All of the articles correlate either to the establishment of most favored nation status with other trade organizations or the keyword correlated to the types of agreements or barriers present between those entities.  In light of what has been globally happening with the EU, I felt like the pronouncement of Brexit by the UK will have a butterfly effect around the world and I wanted to educate myself more on how them taking on most-favored nation status with the EU could dictate their future economic response with other nations established as trade partners.