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IAI Actuarial Core Principles · Business Economics · Globalisation and multinational business

A group of countries removes internal tariffs and adopts a common external tariff on imports from non-members, but members still keep separate currencies and do not allow free movement of labour. Which type of trade bloc is this?

This is a customs union. Members have free internal trade and apply a common external tariff to outsiders. It falls short of a common market, which would also permit free movement of labour and capital, and of monetary union, which needs a single currency.

  1. AFree trade area
  2. BCustoms unionCorrect
  3. CCommon market
  4. DEconomic and monetary union
  5. Preferential trading area

Explanation

A free trade area removes internal barriers but each member keeps its own external tariffs. Adding a common external tariff makes it a customs union. A common market would further allow free movement of factors such as labour and capital, and monetary union adds a single currency.

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