ACCA Applied Skills · Corporate and Business Law (Global) · International trade, international legal regulation and conflict of laws
Several states agree to remove tariffs between themselves and also to apply one common external tariff to goods from non-members. What type of trading arrangement is this?
This is a customs union. Members abolish tariffs between themselves and apply a common external tariff to non-members. A free trade area lacks the common external tariff, because each member sets its own tariff against outside countries.
- AA free trade area
- BA customs unionCorrect
- CA preferential trading area
Explanation
A customs union removes internal tariffs and adds a common external tariff. In a free trade area members remove tariffs between themselves but each keeps its own external tariffs, so that option is wrong here.
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