Non-Preferential Trading Clubs

This paper examines the welfare implications of non-discriminatorytariff reforms by a subset of countries, which we term a non-preferential tradingclub. We show that there exist coordinated tariff reforms, accompaniedby appropriate income transfers between the member countries, that unambiguouslyincrease the welfare of these countries while leaving the welfare ofnon-members unaltered. In terms of economic policy implications, our resultsshow that there exist regional, MFN-consistent arrangements that leadto Pareto improvements in world welfare.JEL code: F15.Keywords: Trading clubs, non-preferential tariff reform, Kemp-Wan-Ohyama proposition.