South-South Customs Union Leads to Trade Diversion and Reduced Global Welfare
Developing countries are exploring trade agreements as an alternative to global negotiations. A study looked at how a south-south customs union affects tariffs and welfare. The results show that south countries benefit from the union, but it harms the north country. When south firms are less efficient than north firms, the union leads to less global welfare. In a repeated interaction model, free trade is less likely to be sustainable under the south-south customs union.