Determining the common external tariff in a customs union: evidence from the Eurasian Customs Union

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How do member states determine the common external tari ff (CET) in a customs union?

While a large theoretical literature already studies the incentives faced by governments when negotiating the CET, empirical evidence has so far been limited. This paper studies a large panel data set of tari ff data from the Eurasian Customs Union (EACU) and provides evidence that demonstrates the importance of mutual protectionism: member states bargain to extend to their partners the protection of goods which had only been protected nationally previously. Moreover, there is very little evidence of the successful exercising of bargaining power to keep the common external tariff (CET) low for goods where any one of the member states would see large tariff  increases.

Thus, as the paper explains, countries bargain for mutual protection, rather than reciprocal liberalisation concessions. The paper also demonstrates how the mutual protectionism finding came about using three methodologies: an analysis of variance (ANOVA) using the unique explanatory power of each variable, determining the Shapley value via an analysis of variance (ANOVA) and, finally, using an ordinary least-squares (OLS) regression. Furthermore, the author develops a simple model to explain the effect of mutual protectionism.

Mkrtchyan Arevik
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Last updated 21.06.2016
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