Customs Unions with Global Trade Agreements

18 Pages Posted: 1 May 2002

See all articles by Pertti J. Haaparanta

Pertti J. Haaparanta

Aalto University - Department of Economics

Toni Riipinen

Aalto University - LTT Research Ltd.

Date Written: April 15, 2002

Abstract

The Kemp-Wan proposition on the existence of Pareto-improving customs union is extended by allowing the customs union to make trade agreements with non-members. We show that given some unused gains from trade a customs union improving its member' welfare with unchanged non-members' welfare exists as long as relative prices within the union and in some non-member country differ from each other. In this sense customs unions always have an incentive to build a multilateral harmonised trading system. In this system the customs union would reap all the gains from trade. This result contrasts with the original Kemp-Wan insight that customs unions can always expand with new members also increasing their welfare.

Keywords: Customs union, Kemp-Wan proposition, Pareto-improving customs union, Trade agreements

JEL Classification: F11, F13, F15

Suggested Citation

Haaparanta, Pertti J. and Riipinen, Toni, Customs Unions with Global Trade Agreements (April 15, 2002). Available at SSRN: https://ssrn.com/abstract=307420 or http://dx.doi.org/10.2139/ssrn.307420

Pertti J. Haaparanta (Contact Author)

Aalto University - Department of Economics ( email )

PO Box 1210
FI-00101 Helsinki
Finland

Toni Riipinen

Aalto University - LTT Research Ltd. ( email )

Helsinki
Finland

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