MFN Yes, MFN No?: Trade Developments Between the EU and Russia and the Principle of Most-Favored-Nation

Abstract

This research analyzes the consequences of the likely revocation of the principle of the most-favored-nation (MFN) in trade relations between the European Union (EU) and Russia. The analysis shows that this event would have more negative effects on Russia than the EU. The increase in import tariffs would benefit the EU with increase in profits but would lead to an increase in the cost of products for buyers in the short term, pushing them into new, more advantageous markets. Although Russia is trying to replace EU products with Asian ones, and gaining success too, the case of foreign direct investment (FDI) is different, as the country is still heavily dependent on EU.