DP3572 Non-Preferential Trading Clubs

Author(s): Pascalis Raimondos, Alan D Woodland
Publication Date: October 2002
Keyword(s): customs unions, Kemp-Wan proposition, non-preferential tariff policies, open regionalism, trading clubs
JEL(s): F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3572

This Paper examines the welfare implications of non-discriminatory tariff reforms by a subset of countries, which we term a non-preferential trading club. We show that there exist coordinated tariff reforms, accompanied by appropriate income transfers between these countries, which unambiguously increase the welfare of these member countries while leaving the welfare of non-members unaltered. These tariff reforms are chosen to maintain world prices at their pre-club levels and, in this respect, the trading clubs act in a Kemp-Wan-like manner. In terms of economic policy implications, our results show that there exist regional, MFN-consistent arrangements that lead to Pareto improvements in world welfare. Open regionalism is an example of such trading arrangements.