In my essay, I deal with the issue: “Why should a country join a customs union?” Regarding to this question, I try to figure out a couple of facts which might encounter countries to join a customs union. After a brief statement of the economics in the international context I’ll consider the advantages and disadvantages of joining a customs union, compare the advantages and disadvantages and finally give a brief statement. For supporting my conclusions I’ll refer to the development in the EC.
Table of Contents
Introduction
A) Economics in the international context
B) Principles of a custom union
C) Advantages of a Customs Union
1.) Static effect of trade creation
2.) Common external tariff
3.) Dynamic affects
a) Economies of large scale production
b) Increased competition between firms
c) Advances in technology
d) Stimulation of domestic investment
e) Summary of the advantages
D) Disadvantages/ no effect at all
1.) The static effect of trade diversion
2,) Diversity of the economics in the states
E) Conclusion
Objectives and Research Themes
This essay explores the economic rationale for countries to join a customs union, examining the potential benefits and drawbacks of such integration by referring to the developmental experience of the European Community.
- Analysis of economic integration principles within the international context.
- Evaluation of static effects, including trade creation and trade diversion.
- Investigation of dynamic economic effects such as economies of scale, competition, and technological advancement.
- Discussion on the influence of national economic diversity on the success of a customs union.
Excerpt from the Book
3.) Dynamic affects
The dynamic affects of international integration are those, which influence the rate of economic growth of the member of a customs union. They are expected to be positive for the customs union as a whole, although not necessarily for every member state of the union. Due to the larger market, firms will be able to increase output and exploit opportunities for cost saving in production. Consumers will benefit through resulting decline in product price which will as also result in an increase internal as well as external demand. Moreover domestic firms will increase their contest by partner-country rivals. Managerial and organisational inefficiencies will be eliminated with consequent for the consumers. These effects are following:
a) Economies of large scale production
Larger markets help firms to achieve economics of scale in production; an increase in production lowers the average cost of output per unit. Due to trade creation and the cost reduction effect due to technical economics of scale the average costs for production of different maters of output, per unit of time, of a given commodity, drops. This process reduces the prices for the consumers and may benefits small firms, as in Japan, because they may be included in the network of large firms due to reduced cross-boarder transaction costs.
Summary of Chapters
Introduction: Outlines the essay's intent to investigate why countries join customs unions by weighing advantages and disadvantages.
A) Economics in the international context: Describes the increasing complexity of global economics and the necessity of multilateral organizations like the WTO to manage international trade.
B) Principles of a custom union: Defines a customs union as an agreement to eliminate intra-group tariffs and establish a common external tariff for third countries.
C) Advantages of a Customs Union: Examines positive impacts including trade creation, the benefits of a common tariff, and dynamic effects such as economies of scale and innovation.
D) Disadvantages/ no effect at all: Addresses potential negative outcomes like trade diversion and the challenges posed by economic diversity among member states.
E) Conclusion: Summarizes that while trade diversion is a risk, the long-term gains from trade creation and dynamic effects typically justify joining a customs union.
Keywords
Customs Union, International Economics, Globalisation, Trade Creation, Trade Diversion, Common External Tariff, Economic Integration, European Community, Economies of Scale, Market Competition, Technological Advancement, Domestic Investment, Welfare Gains, Fiscal Advantage, Multilateralism.
Frequently Asked Questions
What is the primary purpose of this work?
The work examines the economic justifications for countries to join a customs union by analyzing the theoretical and practical impacts of such integration.
What are the core thematic areas discussed?
The essay focuses on the principles of customs unions, the distinction between static and dynamic economic effects, and the trade-offs between trade creation and trade diversion.
What is the central research question?
The primary research question is: "Why should a country join a customs union?"
Which scientific methods are applied in the essay?
The author utilizes an economic analysis approach, drawing upon standard trade theory and empirical observations regarding the development of the European Community.
What content is covered in the main body?
The main body covers the definition of a customs union, the classification of advantages (static and dynamic effects), the identification of disadvantages (trade diversion and economic diversity), and a concluding synthesis.
Which keywords best characterize this work?
Key terms include customs union, trade creation, trade diversion, economic integration, economies of scale, and European Community.
How does the concept of "trade creation" function in a customs union?
Trade creation occurs when consumers shift from higher-cost domestic suppliers to lower-cost suppliers within the customs union, leading to increased efficiency and net welfare savings.
What is the potential risk of trade diversion?
Trade diversion occurs when consumption shifts from a low-cost supplier outside the union to a higher-cost producer within the union due to tariff preferences, which can reduce overall economic welfare.
Does the author consider economic diversity to be a challenge for integration?
Yes, the author notes that gains from a customs union are often maximized when member economies are similar, as large disparities can limit the benefits of increased competition and trade.
- Citation du texte
- Daniel Burchardt (Auteur), 2008, Why should a country join a customs union?, Munich, GRIN Verlag, https://www.grin.com/document/123235
