What is customs union in customs

Explain Customs union in customs


Customs union is a trade agreement by which a group of countries charges a common set of tariffs to the rest of the world while granting free trade among themselves. It is a partial form of economic integration that offers an intermediate step between free-trade zones and common markets. It also states that impose a common external tariff on imports from non-members. By ensuring that customs union members have the same external tariff, any components will either have already paid the tariff to enter or will have originated inside the customs union.

The main benefit of customs unions is to promote trade among members by the elimination or severe reduction of tariffs. Protection is available because all members create a common trade policy. The producers get a larger and wider market so they can produce more goods. Consumers have a more choice of goods and can buy at lower prices. 

The main disadvantage in a customs union is that it restricts the freedom of the parties to conduct independent trade policies. Its freedom to negotiate is heavily constrained by the fact that it has agreed to align the majority of its goods tariffs. The bigger member countries get more benefit from the deal compared to the smaller member countries.

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