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Journal of Economic Integration 2003 March;18(1) :18-41.
FTA, Customs Union or Unilateral Trade Policy? Final Status Options for "the West Bank and Gaza"

Maurice Schiff 

The World Bank
Copyright ©2003 Journal of Economic Integration
This paper considers regional and unilateral trade policy options for the West Bank and Gaza (WBG). It examines the welfare implications of a free trade agreement (FTA) with Israel, a customs union (CU) with Israel, and a nondiscriminatory trade policy (NDTP). The analysis captures the fact that the WBG is landlocked, that it has a large trade deficit with Israel, and that smuggling takes place between them. The paper concludes that i) a NDTP is unambiguously superior to a FTA with Israel; but ii) the WBG should only pursue a NDTP if the policy is open, transparent, and enforced by a credible lock-in mechanism; otherwise, a CU with Israel may be preferable, especially if trade and other taxes are shared more equitably.
Keywords: West Bank-Gaza | Customs union | FTA | Unilateral liberalization
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