On the theory of customs union and tariff policy
Abstract
This paper studies the changes in optimal tariffs on goods from the rest of the world due to the signing of a free trade agreement and the build up of a custom union. It shows that a trade agreement that reduces or eliminates tariffs between member countries, gives them the incentives to reduce tariffs on goods from the rest of the world regardless of the existence of a custom union in an agreement. It also shows that tariffs reduction is greater when the agreement does not contemplate a custom union.
References
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