P/E/177. Customs units: static and dynamic theories

The paper examines the static and the dynamic theories of customs unions, i.e. agreements between two or more countries to remove trade barriers. The first theory claims that the formation of a customs union can lead to cheaper sources of supply; however, it may also bring about an increase in supply costs. The dynamic theory focuses on the changes that take place over time, e.g. the fall in imports, increased competition, etc. Positive and negative effects of customs unions are analysed and the conclusion is made that both theories must be considered in creating a customs unit.