In general one cannot assert that countries forming the union will gain from the customs union unless the union imposes the optimal tariffs.
1976) An Elementary Proposition Concerning the Formation of Customs Union.
6546 Table 2 Alternative Equilibria under Custom Unions Customs Union 2 and 3 Non-union Country 2 Country 3 Country in the in the (Country 1) Union Union Union Capital/Labour 0.
The effects of the customs union on the country's welfare level relative to its position under tariffs is shown in Table 3.
When countries form a customs union they take the average tariff rate as the tariff rate of the union.