IAI Actuarial Core Principles · Business Economics · Importance of international trade
A group of countries removes internal tariffs and adopts a common external tariff on imports from non-members, but does not allow free movement of labour or share a currency. Which type of trading bloc is this?
This is a customs union. Members have no tariffs on trade among themselves and apply a common external tariff to outsiders. It falls short of a common market because labour and capital do not move freely, and short of monetary union because currencies stay separate.
- AFree trade area
- BCustoms unionCorrect
- CCommon market
- DEconomic and monetary union
- Preferential trading area
Explanation
A free trade area removes internal tariffs only, with each member keeping its own external tariffs. Adding a common external tariff makes it a customs union. A common market would also allow free movement of factors, and a monetary union adds a single currency.
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