Trading Blocs

Question 1

what is a free trade area?

Answer 1

• sovereign countries belonging to the free trade area, trade freely amongst themselves but have individual trade barriers with countries outside the free trade area
• all members have the most favoured nation status, which means that they were all treated equally e.g. NAFTA

Question 2

what is a customs union?

Answer 2

• the countries are no longer fully sovereign over trade policy. there will be some degree of unification of custom or trade policy
• they will have a common external tariff (CET) which is applied to all countries outside the customs union e.g. EU

Question 3

what a common external tariff (CET)?

Answer 3

common duty or tariff on imports which is imposed on non members

Question 4

what is a common market?

Answer 4

• this trading bloc is a customs union which has in addition the free movement of factors of production such as labour and capital between the member countries without the restriction

Question 5

what is an economic union?

Answer 5

• level of integration is more developed. the member states may adopt a common economic policy e.g. common agricultural policy of the EU
• they may have a fixed exchange rate. or single currency which involves a single monetary policy