Customs Unions and Common Markets

Question 1

3 trade creation benefits from Customs Union (3)

Answer 1

Consumer gains more variety and lower price
Resources allocated where there are highest returns creating production boost
Larger market enables EOS

Question 2

Trade diversion from Customs Union’s

Answer 2

CU’s can divert trade to a less efficient producer due to tarrif’s

Question 3

Criteria for successful Customs Union (7)

Answer 3

Competing not complementary industry
Low common external tariff
More members
Little diversity/fragmentation
Flexible technology
Productive workforce
FDI

Question 4

Challenges of the EU experience (6)

Answer 4

State aid- Distorts effectiveness of CU
Public Procurement- Gov’s still work back channels to attract firms
Tax- National variations distort market
Technical differences- Understanding of service regulations
Language
Currency