Is the EU an "optimal" customs union? How do you define/measure this? Countries heterogeneous wrt their comparative advantage, political economy.
Write down an optimal/polec model of tariffs. Compute welfare loss if forced to adopt some non-optimal tariffs. (Ideally, somehow related to the optimal tariffs of other countries in the union.)
Approximate this welfare loss as a function of difference of import shares (import penetration vector?) Do not engage in debate about elasticities. Maybe political organization.
Give the reduced-form formula derived above, compute index of dissimilarity for each country pair. Simulate empirical distribution to account for sparsity...
Correlate with economic diplomacy as a validation exercise, not the main focus of the paper.
As a benchmark, we can compute the same statistic for regions within Span, as opposed to MSs within EU.
PRODCOM data to be able to compute domestic absorption.