Exchanging Market Access at the Outsiders' Expense - the Case of Customs Unions
19 Pages Posted: 2 Sep 2004
Date Written: August 2005
Under a customs union, countries can exchange preferential market access by coordinating external tariffs to shift profits from excluded countries. I show that the exporting rents resulting from this coordination can offset trade diversion losses produced by the union, even if its members are relatively small in world markets. Such gains come, however, at the expense of excluded countries. I show that small countries can use customs union also to foster multilateral cooperation, by increasing the incentives of excluded countries to support global free trade.
Keywords: Regionalism, Customs Unions, Trade Agreements, Market Access
JEL Classification: F02, F13, F15
Suggested Citation: Suggested Citation