On the cost of re-establishing Yugoslavia: first estimates of the economic impact on Montenegro of establishing a customs union with Serbia

A new state has recently been (re-)created: the ‘Union of Serbia and Montenegro’. Does this creation make economic sense? This article looks at one key aspect of this issue and presents some first estimates of the economic impact on Montenegro of unifying its tariffs with those of Serbia. The main result is that if the common state were to adopt tariff rates anything close to the present Serbian levels the welfare costs would be considerable, in the order of [euro]20–40 million, or several per cent of Montenegrin GDP The exact amount depends of course on the common tariff schedule, which has still to be negotiated. But our calculations show that even an increase to the EU level would be painful for consumers in Montenegro.