This study analyzes the expected impact of the implementation of a Customs Union between Guatemala and El Salvador on the latter’s economy. In order to do so, the main implications of moving from a Free Trade Area to a Customs Union are examined: CET establishment (with special attention paid to those sectors that would be negatively affected by a tariff reduction), RoO elimination and the abolition of customs controls. The analysis anticipates that efficiency gains from a number of factors (including reduction of goods’ prices, RoO administrative and compliance expenses and custom-related transaction costs) surpass the negative impact on domestic producers that are affected by a tariff cutback.

Roberto Miranda

Published in Berlin Working Papers on Money, Finance, Trade and Development, July 2012