Customs Unions and Contingent Protection between Competing Exporters

Abstract

This paper explores the ramifications of customs unions (CUs) for multilateral trade cooperation within an economic environment characterized by trade-volume volatility and in a competing-exporters framework. We demonstrate that the parallel formation of different CUs leads to a gradual but permanent reduction in multilateral trade tensions unlike in the competing-importers case (Tabakis, 2010). More specifically, we show that the formation of the CUs will be accompanied by a decline in contingent protection (such as safeguards or antidumping duties) but will have a less pronounced effect on ìnormalî most-favored-nation tariff protection.