Accession Number : AD0608648

Title :   A NEW LOOK AT CUSTOMS UNION THEORY,

Corporate Author : RAND CORP SANTA MONICA CALIF

Personal Author(s) : Cooper,C. A. ; Massell,B. F.

Report Date : NOV 1964

Pagination or Media Count : 9

Abstract : In the report the following points are discussed: (1) Analytically the welfare effect of a customs union -whether trade creating, trade diverting, or both -- can be split into two components: a tariff reduction component, and a pure trade diversion component. (2) The tariff reduction component is the sole source of any gain in consumers' welfare that might result from a customs union. It accounts for both trade creation and the consumption effect. (3) Using as a point of reference an appropriate policy of nonpreferential protection, a customs union necessarily results in pure trade-diversion, and is consequently 'bad' in a welfare sense. (4) The 'free trade point of view' underlying the Vinerian analysis fails to explain why a customs union would ever be preferred to a nonpreferential tariff policy. (5) Recognition of the purposes served by tariffs permits an explanation of the existence of customs unions, and the extension of customs union analysis to a greater variety of issues than has hitherto been the case.

Descriptors :   (*ECONOMICS, COMMERCE), (*COMMERCE, THEORY), INDUSTRIAL PRODUCTION, CONSUMPTION

Distribution Statement : APPROVED FOR PUBLIC RELEASE