Moreover, the issues of formation of the common energy market for the Customs Union
member states and the Single
As a result of the customs union the non-union country when compared relative to the tariff equilibrium will be better off.
When countries 1 and 2 form the customs union the endowment vectors of non-union and union become
When countries 1 and 3 form the customs union the endowment vectors of the non-union and union become
After the customs union, country A still could import from the lower cost source, country D, so long as the amount of imports does not exceed the import quota OG.
After the customs union, country A's welfare will be always increased.
In other words, country A will be always better off to grant a quota-free entry to the imports from country U after the customs union than to grant a duty-free entry to the imports from country U after the customs union.
However, country A can choose to make an appropriate non-preferential tariff reduction rather than to join the customs union. If country A reduces the non-preferential tariff from T to T', the price of good X in country A will be lowered from [P.sub.1] to [P'.sub.2] as in the customs union.
Suppose that country A initially imposes a non-preferential tariff, T, before a customs union. [S'.sub.B] and [S'.sub.C] will be the export supply curves of country B and country C, respectively, after country A imposes the tariff.
Now consider the case where country A imposes an import quota instead of a tariff before it forms a customs union with country B.
Next suppose that countries A and B form a customs union. Country A's import quota on imports from country B is eliminated.