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Is the WTO's Article XXIV Bad?

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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.

Suggested Citation

  • David Vines & Monika Mrazova, 2008. "Is the WTO's Article XXIV Bad?," Economics Series Working Papers 417, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:417
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    Cited by:

    1. Facchini, Giovanni & Silva, Peri & Willmann, Gerald, 2013. "The customs union issue: Why do we observe so few of them?," Journal of International Economics, Elsevier, vol. 90(1), pages 136-147.
    2. Kamal Saggi & Alan Woodland & Halis Murat Yildiz, 2013. "On the Relationship between Preferential and Multilateral Trade Liberalization: The Case of Customs Unions," American Economic Journal: Microeconomics, American Economic Association, vol. 5(1), pages 63-99, February.
    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. 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.
    5. Ben Zissimos, 2011. "Why are Trade Agreements Regional?," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 32-45, February.

    More about this item

    Keywords

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

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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