Belarusian Economic Research and Outreach Center

Determining the Common External Tari ff in a Customs Union: Evidence from the Eurasian Customs Union

How do member states determine the Common External Tari ff (CET) in a Customs Union? While a large theoretical literature studies the incentives faced by governments when negotiating the CET, empirical evidence is so far scant. This paper studies a large panel data set of tari data from the Eurasian Customs Union and demonstrates the importance of mutual protectionism: member states bargain to expand to their partners the protection of goods that were protected nationally. Moreover, there is almost no evidence of exercising bargaining power to keep keep the CET down for goods where one of the member states would see large tari increases. Thus countries bargain for mutual protection, rather than mutual liberalisation concessions. I show that the mutual protectionism nding emerges using three methodologies: analysis of variance using unique explanatory power of each variable, determining the Shapley value from analysis of variance and nally OLS regression. Furthermore, I develop a simple model to explain the mutual protectionism e ect.