Is the GATT/WTO's Article XXIV bad?
Journal of International Economics
The GATT/WTO Article XXIV prevents a customs union (CU) from raising its common external tariff. In this paper, we compare CU formation with and without this Article XXIV constraint. We show, in a multi-country oligopoly model, that for a given CU structure, Article XXIV improves world welfare by lowering trade barriers. However, we also show that Article XXIV has a composition effect on CU formation: it affects the endogenous choice of CUs. By encouraging more symmetric CUs, Article XXIV causes more trade to be subject to trade barriers. As a result, Article XXIV may be ‘bad’ for world welfare.
Post-print draft dated July 25, 2012. Final version published by Elsevier; available online at http://www.sciencedirect.com/
Volume 89, Issue 1, January 2013, Pages 216–232