Customs Union - Explained
What is a Customs Union?
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Table of ContentsWhat is a Customs Union?Examples of Customs UnionsAcademic Research on Customs Union
What is a Customs Union?
The customs unions is an essential part of many state's trade associations. By definition, this is a form of trade agreements that bind two or more countries. It generally means that the parties decide not to impose various tariffs such as a tax on their imports or each other's products. They, however, agree to impose the same elements to common external tariffs from other states outside of their trade unions.
Examples of Customs Unions
- Southern African Development Community (SADC)
- Economic Community of Central African States (ECCAS)
- Arab Customs Union (ACU)
- African Economic Community (AEC)
- Australia New Zealand (Closer Economic Relations Trade Agreement)
Academic Research on Customs Union
- A new look at customs union theory, Cooper, C. A., & Massell, B. F. (1965). The economic journal, 75(300), 742-747. This paper addresses the new look at customs union theory where researchers have concluded that customs unions may bring forth trade creation or diversion of trade portfolios. Viner draws a major conclusion between trade creation and recreation. Since trade creation entails a shift of consumption of the goods that have been imported, from a high-cost producer to a low-cost service provider. On the other hand, a trade diversion entails a significant switch from the low-cost external producer to the high-cost internal producer. The study argues that trade creation brings more welfare opportunities to a country.
- Economies of scale and customs union theory, Corden, W. M. (1972). Journal of Political Economy, 80(3, Part 1), 465-475. This paper criticizes the traditional customs union theory because it lies in the failure of the elements when it comes to allowing the economies of scale. Research shows that Viners analysis fails to incorporate the effect of economies of scale. Its also factual that regional integration leads to the creation of larger markets which enables firms to exploit a greater share of economies of scale. Therefore, customs union formation will highly lead to the exploitation of greater economies of scale. This will drive down the costs. With the main tariff barriers removed, internationally-scaled firms can benefit greater economies of scale from larger existing single markets created. Apart from the possibilities of price improvements and technical efficiency, and economies of scale, firms may be reaped when joining customs unions.
- Customs union from a single-country viewpoint, Gehrels, F. (1956). The review of economic studies, 24(1), 61-64. In this paper, the research seeks to highlight the answer to the question as to why a country should join a customs trade union. The document addresses a couple of facts that may encounter encourage states to join a customs union. After a short statement of the economies of scale in the global landscape, researchers consider the main advantages as well as disadvantages of a country joining a customs union. Moreover, when customs unions are established, the flow of trade between countries involved as well as those outside the union will grievously be affected.
- Is unilateral tariff reduction preferable to a customs union? The curious case of the missing foreign tariffs, Wonnacott, P., & Wonnacott, R. (1981). The American Economic Review, 71(4), 704-714. This paper analyses the effect of unilateral tariff reduction on the customs union. Being a trade agreement that serves as a treaty that a nation may impose without regards to others, such an arrangement may benefit the single state only. It is unilateral since other foreign countries have no choice regardless of the matter. Therefore, it's not an open negotiation. UTR leads to the great formation of a customs union.
- Endogenous formation of customs unions under imperfect competition: open regionalism is good, Yi, S. S. (1996). Journal of International Economics, 41(1-2), 153-177. In this paper, we look at the statistical effects of customs unions formation on global welfare under the oligopolistic competition, accounting for various market sizes and the number of market sizes and marginal costs. The study builds a basic model representing four states and goes ahead to analyze the members as well as non-members welfare situation moving from tariff-ridden to a single customs union then onto a double customs union situation prior to investigating a free trade option. Research also identifies conditions under which all states can improve under the formation of several customs unions.
- Recent developments in customs union theory: An interpretive survey, Krauss, M. B. (1972). Journal of economic literature, 10(2), 413-436. This paper looks at international trade and the different issues arising from the aspects that have been concerning numerous economists for quite some time. The case is of the recent developments in customs unions as well as the establishment of international trade on the ground of three main contentions namely differences in factor availability, the profitability of the global division and the comparative costs difference in the production of commodities in different countries and unions. It's these specific fundamentals that led to the creation of relative costs doctrine in the theory of international trade.
- On Turkey's trade policy: Is a customs union with Europe enough?Mercenier, J., & Yeldan, E. (1997). European Economic Review, 41(5-Mar), 871-880. This paper highlights the impact of removing all Tunisian tariffs on imports from the EU while working hard to maintain protection on imports from the rest of the world is primarily evaluated using a computable general equilibrium model. Competitive as well as Cournot oligopolistic commodities market structures with and without barriers to entry and exit are also considered. Its established that a free trade agreement improves the welfare of a country in many cases. This means that there will be maximum gains under oligopoly as well as free entry and exit. At the sectoral level, the free trade arrangement enables different states to gain from agriculture as well as services.
- The economic theory of customs union, Johnson, H. G. (1998). International Economic Integration: Theory and measurement, 1, 184. This paper analyses J. Viners theory of customs union. It states that before his initiation, there was a general belief that the customs union raises the level of welfare as a customs union is a movement towards freer trade at least within a specified area. Viner suggested that the conclusion regarding the increase in welfare because of a customs union isn't necessarily valid. He also analyzed the production effects of various customs unions through the concepts of trade creation as well as trade diversion. The works of other researchers such as Meade, Lipsey, Lancaster, and others analyzed the consumption effects.
- The new Southern African customs union agreement, Kirk, R., & Stern, M. (2005). World Economy, 28(2), 169-190. This paper analyzes the evolution of the Southern African Customs Union tracing it from the inception in 1889 at the convention and the worlds first customs union to its present status. Although the union has been operated under different agreements and contracts, which have been negotiated as well as renegotiated over the past few years, the research study analyzes the deals of 1889, 1910, 1969, as well as 2002 as some of the main union's transformations. It's also observed that SACU has vastly evolved from a geopolitical organization with a repressive colonial foundation to a well-integrated regional trading bloc that is perceived as a possible springboard.
- Has European customs union agreement really affected Turkey's trade?, Neyapt, B., Takn, F., & ngr, M. (2007). Applied Economics, 39(16), 2121-2132. This paper looks closely into the relationship between Turkey and the EU. The two have been in a customs union from 1995, and both sides have recognized the fact that this arrangement needs updating to rectify design deficiencies that are often undermining its operational effectiveness to maintain a significant pace with the new generation of trade agreements that the EU recently signed. It has been noted that Turkey aspires to have a slightly stronger voice in the policy formulation of the EU. It also aspires to make sure that it's included in future EU free trade arrangements.
- Competitiveness of Turkish SMEs in the customs union, Erzan, R., & Filiztekin, A. (1997). European Economic Review, 41(3-5), 881-892. This paper looks at the modernization of the current customs union agreement with the EU and how crucial it is not just for Turkey but for Malta too. It would also provide firms in Malta with broader access to the Turkish market. In as much as the update of the customs union with the EU is essential for Turkey, it's also of the same importance for Malta. It's highly assumed that the impact of these unions will be severe on small and medium scale businesses.
- The theory of customs unions: A general survey, Lipsey, R. G. (1960). The economic journal, 70(279), 496-513. This paper presents a method for the decomposition of the impact of customs unions into the trade-diversion and consumption impacts where the model is used as the primary framework within which Viners original customs union analysis is investigated. The impending issues examined include whether Viners initial customs-union analysis makes the presented assumptions about production as well as consumption which are often attributed to it by conventional wisdom.