Is the WTO's Article XXIV Bad?

51 Pages Posted: 18 Feb 2009

See all articles by Monika Mrazova

Monika Mrazova

University of Oxford - Balliol College

David Vines

University of Oxford - Balliol College - Department of Economics; Australian National University (ANU); Centre for Economic Policy Research (CEPR)

Ben Zissimos

Vanderbilt University - College of Arts and Science - Department of Economics

Date Written: January 2009

Abstract

This paper shows that the WTO's Article XXIV increases the likelihood of free trade, but may worsen world welfare when free trade is not reached and customs unions (CUs) form. We consider a model of many countries. Article XXIV prevents a CU from raising its common external tariff, which makes CU formation less attractive and explains why free trade is more likely. In an equilibrium where two CUs do form, one is necessarily larger than the other. We show that Article XXIV has a 'composition effect' on CU formation, whereby CUs are (endogenously) less asymmetric in size so more goods are subject to tariff distortions as they move between CUs; thus Article XXIV may be 'bad' for world welfare.

Keywords: Coalition formation game, customs union, protection, trade block, trade liberalization

JEL Classification: F02, F13, F15

Suggested Citation

Mrazova, Monika and Vines, David and Zissimos, Ben, Is the WTO's Article XXIV Bad? (January 2009). CEPR Discussion Paper No. DP7144, Available at SSRN: https://ssrn.com/abstract=1345670

Monika Mrazova

University of Oxford - Balliol College ( email )

Broad St
Oxford, OX1 3BJ
United Kingdom

David Vines (Contact Author)

University of Oxford - Balliol College - Department of Economics ( email )

Manor Road
Oxford, OX1 3BJ, Oxfordshire OX13UQ
United Kingdom
+44 1865 271 067 (Phone)
+44 1865 271 094 (Fax)

Australian National University (ANU)

Canberra, Australian Capital Territory
Australia

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ben Zissimos

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

HOME PAGE: http://www.vanderbilt.edu/econ/cv/ZissimosCV.pdf

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