Page 237 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

Pavitar Parkash Singh, LPU Unit 21 : Static and Dynamic Effects of a Custom Union and Free Trade Organization

Unit 21 : Static and Dynamic Effects of a Custom Union and Notes
Free Trade Organization

CONTENTS
Objectives
Introduction
21.1 The Trade Regimes
21.2 The Effects of Customs Union
21.3 Summary
21.4 Key-Words
21.5 Review Questions
21.6 Further Readings

Objectives

After reading this Unit students will be able to:
• Understand the Trade Regimes and the Effects of Customs Union.
• Discuss the conclusions and Recommondations.
Introduction

In the aftermath of the break-up of the Soviet Union, trade among the new independent states collapsed.
Estimates vary, but the drop in volume terms may have been as much as 50% between 1992 and 1995
(see table 1). We have discussed the reasons and the consequences of this drastic decline elsewhere
(Michalopoulos and Tarr, 1994; 1996).
The three Baltic countries decided, early on, to reorient their trade to Europe and the rest of the
world; and all three have signed association agreements with the European Union.
The other twelve countries (members of the Commonwealth of Independent States (CIS)), attempted,
mostly unsuccessfully, to maintain trade with each other through a variety of policy interventions,
including through the establishment of a Free Trade Agreement (FTA).
The purpose of this unit is to analyze the economic implications of a customs union among transition
economies, such as the one established by these four countries, for both existing and prospective
members. The next section of the paper describes in broad terms the current trade regimes of the CIS,
including the arrangements that govern trade with each other. The third section analyses the economic
effects of the customs union, in part through the use of a partial equilibrium model described in
detail in the appendix. The focus is on the effects of joining the customs union for countries which
have not done so. As most CIS members are applying for accession to the WTO, this section also
draws some implications of the customs union for WTO accession. The last section summarizes the
policy conclusions and implications of the analysis. While the analysis focuses on the CIS countries,
some of the findings may be of relevance to other countries in transition--for example, among the
countries of the former Yugoslavia, that are considering the establishment of similar arrangements.
21.1 The Trade Regimes

While the trade policy framework continues to be evolving and varies considerably among countries,
the following main features characterize the trade regimes of CIS members: On the import side, most
countries have so far avoided the establishment of quantitative restrictions or licensing. But
protectionist pressures are rising and leading to the imposition of such controls in some countries
(e.g., Uzbekistan) or sectors (alcoholic beverages-- in Russia).

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