4.2.6.2 Customs Union

Customs Union

a group of countries that agree to:

• abolish tariffs and quotas between each other

• adopt a common external tariff on imports from non-members

Preferential tariffs

apply to trade agreements that the European Union has entered into with third parties

European Union(EU), South African Customs Union, Eurasian Customs Union

AO2: Examples of customs unions

trading blocs

• an agreement between countries to lower their import tariffs and perhaps extend this to reducing the use of non-tariff barriers to trade

• in a free trade area, each country continuous to be able to set their own distinct external tariff

Customs Union

• Different from free trade area — no tariffs are changed on goods/services moving within the area

• members adopt a common external tariff

• members negotiate as a bloc when trading with non-member countries

common single market

represents deeper integration between countries, involving free trade in goods/services and freedom of movement of capital and labour

trade creation

when joining a customs union causes firms to switch from a high cost suppliers outside to a low cost supplier inside

trade diversion

when joining a customs union causes firms to switch from a low cost suppliers outside to a high cost supplier inside