Political Asymmetry and Common External Tariff in a Customs Union

Abstract

We present a three-nation model, where two of the nations are members of a Customs Union (CU) and maintain a common external tariff (CET) on the third (non-member) nation. The producing lobby is assumed to be union-wide and lobbies both governments to influence the CET. The CET is determined jointly by the CU. We follow the political support function approach, where the CU seeks to maximize a weighted sum of the constituents' payoff functions, the weights reflecting the influence of the respective governments in the CU. A central finding of this paper is that the CET rises monotonically with the degree of asymmetry in the weights if the two countries are equally susceptible to lobbying. If the weights are the same, but the respective governments are asymmetric in their susceptibilities to lobbying, the CET also rises monotonically with this asymmetry. However, an increase in one type of asymmetry, in the presence of the other type of asymmetry, may reduce the CET. JEL Classification: F13

The Political Economy of Tariff Formation in Vietnam

“…1!Jt' 1a,-ijffom1atio11 f1111rtio11 af,proach was pioneered by Find lay and Wellisz (1982), who considered th<' cariff race ns the ouccome of lobbying concescs between opposmg interest groups. Employing chis approach, Bandyopadhyay, Lahiri, and Roy (2007) have evaluated the effects of political asymmetries in che f-ormacion of common exte rnal tariffs (CETs) in a customs union (CU). Their principal findi!llg was that che CET rises mon.oconically with the degree of asymmetry in councries' influences if che two countries are equally susceptible to lobbying.…”

Enlargement and Common External Tariff in a Political-Economic Model of Customs Union

“…They find that the CET is higher than the FTA tariff unless the two member nations are symmetric. Recently Bandyopadhyay et al (2007) extended the model of Bandyopadhyay and Wall (1999) by endogenizing the tariff-formation function and examined the role of political asymmetries in the determination of the CET. The present paper adopts the model of Bandyopadhyay et al (2007) to examine the issue at hand, viz., the effect of an enlargement of the CU on the CET.…”

Political Asymmetry and Common External Tariff in a Customs Union

“…Some economists are concerned that the process of determination of CETs may lead to more inefficiencies by encouraging cooperation among country-specific lobby groups that may also become international in scope and engage in cross-border lobbying (see, for example, Schiff and Winters, 2003). 3 In fact, cross-border lobbying has become widespread, particularly in the EU. Organizations such as EuroCommerce, EuropaBio (European Association for Bioindustries), and Friends of Europe are extremely active in EU-wide lobbying.…”

“…In an earlier version of the paper in which we assumed the production technologies to be of the Leontief type with sector-specific capital stocks, π ′′ was equal to zero (seeBandyopadhyay et al, 2007).…”