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Non-Preferential Trading Clubs

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  • Raimondos-Møller, Pascalis
  • Woodland, Alan D

Abstract

This Paper examines the welfare implications of non-discriminatory tariff reforms by a subset of countries, which we term a non-preferential trading club. We show that there exist coordinated tariff reforms, accompanied by appropriate income transfers between these countries, which unambiguously increase the welfare of these member countries while leaving the welfare of non-members unaltered. These tariff reforms are chosen to maintain world prices at their pre-club levels and, in this respect, the trading clubs act in a Kemp-Wan-like manner. In terms of economic policy implications, our results show that there exist regional, MFN-consistent arrangements that lead to Pareto improvements in world welfare. Open regionalism is an example of such trading arrangements.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3572.

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Date of creation: Oct 2002
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Handle: RePEc:cpr:ceprdp:3572

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Keywords: customs unions; Kemp-Wan proposition; non-preferential tariff policies; open regionalism; trading clubs;

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References

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  1. Arvind Panagariya, 2000. "Preferential Trade Liberalization: The Traditional Theory and New Developments," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 287-331, June.
  2. Kyle Bagwell & Robert W. Staiger, 2002. "Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO," Discussion Papers 0102-37, Columbia University, Department of Economics.
  3. Neary, J Peter, 1997. "Pitfalls in the Theory of International Trade Policy: Concertina Reforms of Tariffs and Subsidies to HIgh-Technology Industries," CEPR Discussion Papers 1740, C.E.P.R. Discussion Papers.
  4. Srinivasan, T-N, 1996. "The Common External Tariff of a Customs Union : Alternative Approaches," Papers 755, Yale - Economic Growth Center.
  5. Mark Melatos & Alan D. Woodland, 2007. "Pareto-optimal Delegation in Customs Unions," Review of International Economics, Wiley Blackwell, vol. 15(3), pages 441-461, 08.
  6. Bagwell,K. & Staiger,R.W., 1998. "An economic theory of GATT," Working papers 15, Wisconsin Madison - Social Systems.
  7. Murray C. Kemp & Koji Shimomura, 1998. "A Second Elementary Proposition Concerning: The Formation of Customs Unions," Discussion Paper Series 95, Research Institute for Economics & Business Administration, Kobe University, revised May 1998.
  8. Hatta, Tatsuo & Fukushima, Takashi, 1979. "The welfare effect of tariff rate reductions in a many country world," Journal of International Economics, Elsevier, vol. 9(4), pages 503-511, November.
  9. Diewert, W. E., 1973. "Functional forms for profit and transformation functions," Journal of Economic Theory, Elsevier, vol. 6(3), pages 284-316, June.
  10. Fukushima, Takashi & Kim, Namdoo, 1989. "Welfare improving tariff changes : A case of many goods and countries," Journal of International Economics, Elsevier, vol. 26(3-4), pages 383-388, May.
  11. Mayer, Wolfgang, 1981. "Theoretical Considerations on Negotiated Tariff Adjustments," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 135-53, March.
  12. Diewert, W E & Turunen-Red, A H & Woodland, A D, 1989. "Productivity- and Pareto-Improving Changes in Taxes and Tariffs," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 199-215, April.
  13. Turunen-Red, Arja H & Woodland, Alan D, 1991. "Strict Pareto-Improving Multilateral Reforms of Tariffs," Econometrica, Econometric Society, vol. 59(4), pages 1127-52, July.
  14. C. Fred Bergsten, 1997. "Open Regionalism," The World Economy, Wiley Blackwell, vol. 20(5), pages 545-565, 08.
  15. John Kennan & Raymond Riezman, 1990. "Optimal Tariff Equilibria with Customs Unions," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 70-83, February.
  16. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
  17. Sontheimer, Kevin C, 1971. "The Existence of International Trade Equilibrium with Trade Tax-Subsidy Distortions," Econometrica, Econometric Society, vol. 39(6), pages 1015-35, November.
  18. Richardson, Martin, 1995. "On the Interpretation of the Kemp/Wan Theorem," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 696-703, October.
  19. Panagariya, Arvind & Krishna, Pravin, 2002. "On necessarily welfare-enhancing free trade areas," Journal of International Economics, Elsevier, vol. 57(2), pages 353-367, August.
  20. Anderson, James E & Neary, J Peter, 1992. "Trade Reform with Quotas, Partial Rent Retention, and Tariffs," Econometrica, Econometric Society, vol. 60(1), pages 57-76, January.
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Cited by:
  1. Subhayu Bandyopadhyay & Sajal Lahiri & Suryadipta Roy, 2008. "Enlargement and common external tariff in a political-economic model of customs union," Working Papers 2008-022, Federal Reserve Bank of St. Louis.
  2. Pascalis Raimondos-Møller & Alan D. Woodland, 2011. "Reciprocity, World Prices and Welfare," CESifo Working Paper Series 3607, CESifo Group Munich.
  3. Subhayu Bandyopadhyay & Sajal Lahiri & Suryadipta Roy, 2011. "Political Asymmetry And Common External Tariffs In A Customs Union," Economics and Politics, Wiley Blackwell, vol. 23(1), pages 88-106, 03.
  4. Kemp, Murray C., 2007. "Normative comparisons of customs unions and other types of free trade association," European Journal of Political Economy, Elsevier, vol. 23(2), pages 416-422, June.
  5. George Manzano & Myrene Bedano, 2011. "Revisiting Sectoral Liberalization: An Alternative to the Free Trade Area of the Asia-Pacific? Implications for the Philippines," Asia Pacific Trade and Investment Review, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 18(1), pages 73-124, June.
  6. Subhayu Bandyopadhyay & Sajal Lahiri & Howard J. Wall, 2009. "Cross-border lobbying in preferential trading agreements: implications for external tariffs," Working Papers 2009-041, Federal Reserve Bank of St. Louis.

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