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ACCA Applied Knowledge · Business and Technology · Political and legal factors affecting business

Which of the following best describes a customs union?

A customs union removes trade barriers between its members and applies a common external tariff to imports from non-members. This distinguishes it from a free trade area, where each member keeps its own tariffs on outsiders.

  1. AMember countries remove trade barriers between themselves and also apply a common external tariff on imports from non-membersCorrect
  2. BMember countries remove trade barriers between themselves but each keeps its own tariffs on non-members
  3. CMember countries share a single currency and a common central bank but keep tariffs on each other's goods

Explanation

A customs union combines free trade among members with a common external tariff. The second option describes a free trade area, where members set their own external tariffs. The third describes monetary union features, not a customs union.

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