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The effects of the customs union on the country's welfare level relative to its position under tariffs is shown in Table 3.
When countries form a customs union they take the average tariff rate as the tariff rate of the union.
2 percent, and that countries 2 and 3 form a customs union by setting the common external tariff rate at its optimal level of 19.
Point L is the trading point before the customs union.
In other words, the trade diversion effect of a customs union never arises.
However, the welfare of country A could increase, decrease, or remain the same after it joins a customs union.
Country A's tariff revenue after the customs union is gfbh.
The welfare effects of joining the customs union are as follows.
Next, assume that country A chooses to make an appropriate non-preferential tariff reduction rather than to join the customs union.
The welfare of a tariff-imposing country could increase, decrease, or remain the same after it joins a customs union.
The creation of new trade between the home country and the partner country is the trade creation effect of a customs union |Chacholiades, op.