Customs unions and comparative advantage

This paper constructs a simple, general equilibrium trade model to investig ate how the formation of unconstrained, GATT-constrained, and Kemp-Wan cust oms unions affects inter-bloc tariffs and welfare. A central point of the p aper is that the liberalization of intra-union trade creates incentives for all parties to reduce their remaining tariffs. Despite this, regional inte gration may not benefit non-member countries and, depending on trade patter ns and comparative advantage, it may raise welfare of members more than a r egime of globally free trade.