Is the WTO Article XXIV bad?

Monika Mrázová, David Vines and Benjamin Zissimos

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 CUs 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) more symmetric in size so more goods are subject to tariff distortions as they move between CUs; thus Article XXIV may be 'bad' for world welfare.

Keywords: coalition formation game; customs union; protection; trade block; trade liberalization (search for similar items in EconPapers)
JEL-codes: F02 F13 F15 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2010-11-01
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Downloads: (external link)
http://eprints.lse.ac.uk/121915/ Open access version. (application/pdf)

Related works:
Working Paper: Is the WTO Article XXIV Bad? (2010)
Working Paper: Is the WTO's Article XXIV Bad? (2009)
Working Paper: Is the WTO's Article XXIV Bad? (2009)
Working Paper: Is the WTO's Article XXIV Bad? (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:121915

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