What Is A Customs Union Free Trade Agreement

A customs union is generally defined as a kind of trading bloc consisting of a free trade area with a common external tariff. [1] Unions and free trade agreements may be similar. The difference between the two is that, in a customs union, participating countries establish a common tariff (a uniform external tariff applied by all Member States) against third countries, whereas this is not the case in a free trade agreement. The result is other differences: (i) within the framework of a customs union, participating countries must conduct trade negotiations as a single unit (usually the EU), while members can negotiate individually under a free trade agreement; (ii) in a customs union, the free movement of goods between Member States is permitted, but not in a free trade agreement; and (iii) within the framework of a customs union, customs between Member States is not necessary, but a free trade agreement requires it and its function can even be strengthened. Switzerland and Liechtenstein established a customs union in 1924, Belgium, the Netherlands and Luxembourg in 1948, the countries of the European Economic Community in 1958 and the Economic Community of Central African States in 1964. At the time, the European Free Trade Association was different from the customs union of the European Economic Community. Free trade within the first type of alert was limited to industrial products and no uniform tariffs were applied to countries outside the EU. [4] [5] They may be in the EU internal market, but not in the EU, as Norway, Iceland and Liechtenstein do. The advantage of these bilateral or regional agreements is to promote stronger trade between the parties to the agreement.

They can also accelerate global trade liberalization when multilateral negotiations find themselves in trouble. Reluctant countries that are excluded from bilateral agreements and therefore do not participate in the increase in trade they entail may then be encouraged to join accession and dismantle their own trade barriers. However, these advantages must be offset by a disadvantage: by excluding some countries, these agreements can transfer the composition of trade from low-cost countries that are not parties to the agreement to high-cost countries that are. In addition to a common external tariff, an internal market is also trying to reduce the application of non-tariff barriers, such as different product safety rules and environmental standards, which replace them with a common set of rules governing trade in goods and services in the common market.

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