UTR vs. CU Formation: The Missing CET

• DOI: 10.11130/jei.2000.15.2.239
• Publication Date: 2012-11-22T10:42:29Z
• Authors: Ali M. El-Agraa; Anthony J. Jones
• Keywords: 0502 economics and business; 05 social sciences

In 1965, Cooper and Massell (CM), using a partial-equilibrium trade model, reached the conclusion that a policy of unilateral tariff reduction (UTR) is superior to the formation of a customs union (CU). Wonnacott and Wonnacott (WW) challenged this conclusion in 1981 by claiming to show that UTR need not dominate a CU. In this article, we demonstrate that the incorpo - ration of a common external tariff in WW?s CU model not only restores the validity of CM?s conclusion but also leads to the new proposition that the mutual adoption of non-discriminatory free trade policies is superior to UTR. (JEL Classifications: F13, F02)