More on Unilateral Tariff Reduction Versus Customs Unions

Ali M. El-Agraa

Chapter 9 in Trade Theory and Policy, 1984, pp 97-106 from Palgrave Macmillan

Abstract: Abstract It was very clearly demonstrated in Chapter 8 that, given conditions of constant terms of trade and the complete absence of economies of scale, a policy of unilateral tariff reduction (UTR) is always superior to the formation of a customs union (CU)—the Cooper/Massell (1965) criticism. In a recent paper, Wonnacott and Wonnacott (1981) challenge the correctness of the UTR conclusion by emphasising that UTR is ‘fundamentally wrong, not in the sense of having made logical errors, but… in having begun from… assumptions… which… rule out the principal advantages of a CU’ (Wonnacott and Wonnacott 1981, p. 705). The assumptions are: (i) that a CU partner’s tariff can be ignored; (ii) that the rest of the world has no tariffs; and (iii) that there are no transport costs in trade between the CU partners and the rest of the world.

Date: 1984
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DOI: 10.1007/978-1-349-06943-9_9

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