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Economic Impacts of a Possible Canada-U.S. Customs Union: Simulation Results From a Dynamic CGE Model

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  • Ghosh, Madanmohan
  • Rao, Someshwar

Abstract

In this paper we analyze the implication of a possible Canada-U.S. customs union on trade flows, real output and investment both at the aggregate and industry levels in Canada, using a multisector, multi-region dynamic computable general equilibrium model. The model is calibrated to the GTAP Database (version 5, 1997). Our scenario for a possible Customs Union with the U.S. assumes the harmonization of Canadian and U.S. tariffs against the non-NAFTA countries (common external tariffs) as well as the elimination of the Rules of origin provisions of the NAFTA. Our simulation results suggest that the overall economic gain to Canada from a Customs Union between Canada and the U.S. could be as much as 1% of GDP. Canada’s trade could expand by almost 20 %. American trade also increases significantly, but at a slower pace than that of Canada. Much of the increase in trade flows and GDP are the result of the elimination of the Rules of origin provisions. All Canadian industries, except food and beverages, gain from a Canada-U.S. Customs Union. The big beneficiaries are transportation equipment, electronics, and machinery and equipment. Services and resource-based industries gain the least.

Suggested Citation

  • Ghosh, Madanmohan & Rao, Someshwar, 2004. "Economic Impacts of a Possible Canada-U.S. Customs Union: Simulation Results From a Dynamic CGE Model," Conference papers 331192, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331192
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