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Is the WTO's Article XXIV Bad?

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  • David Vines
  • Monika Mrazova

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 CU's 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.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 417.

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Date of creation: 01 Dec 2008
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Handle: RePEc:oxf:wpaper:417

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Keywords: Coalition Formation Game; Customs Union; Protection; Trade Block; Trade Liberalization;

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References

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  8. Ornelas, Emanuel, 2005. "Endogenous free trade agreements and the multilateral trading system," Journal of International Economics, Elsevier, vol. 67(2), pages 471-497, December.
  9. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
  10. Baldwin, Richard, 2006. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade," CEPR Discussion Papers 5775, C.E.P.R. Discussion Papers.
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  13. Wilfred J. Ethier, 1998. "Regionalism in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1214-1245, December.
  14. Maggi, G & Rodriguez-Clare, A, 1996. "The Value of Trade Agreements in the Presence of Political Pressures," Papers 180, Princeton, Woodrow Wilson School - Public and International Affairs.
  15. Bond, Eric W. & Syropoulos, Constantinos, 1996. "The size of trading blocs Market power and world welfare effects," Journal of International Economics, Elsevier, vol. 40(3-4), pages 411-437, May.
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  18. Syropoulos, Constantinos, 1999. "Customs Unions and Comparative Advantage," Oxford Economic Papers, Oxford University Press, vol. 51(2), pages 239-66, April.
  19. Bond, Eric W. & Riezman, Raymond G. & Syropoulos, Constantinos, 2004. "A strategic and welfare theoretic analysis of free trade areas," Journal of International Economics, Elsevier, vol. 64(1), pages 1-27, October.
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Cited by:
  1. Ben Zissimos, 2010. "Why are Trade Agreements Regional?," Vanderbilt University Department of Economics Working Papers 1002, Vanderbilt University Department of Economics.
  2. Constantinos Syropoulos, 2002. "On Tariff Preferences And Delegation Decisions In Customs Unions: A Heckscher--Ohlin Approach," Economic Journal, Royal Economic Society, vol. 112(481), pages 625-648, July.
  3. Jorzik, Nathalie & Mueller-Langer, Frank, 2013. "Multilateral Stability and Efficiency of Trade Agreements: A Network Formation Approach," Discussion Papers in Economics 14587, University of Munich, Department of Economics.
  4. Kamal Saggi & Alan Woodland & Halis Murat Yildiz, 2011. "On the Relationship between Preferential and Multilateral Trade Liberalization: The Case of Customs Unions," Vanderbilt University Department of Economics Working Papers 1116, Vanderbilt University Department of Economics.

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