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CA Foundation · Business Economics · International Trade

Which of the following correctly describes a customs union among member countries?

A customs union is a trade bloc whose members trade freely among themselves and apply a common external tariff on imports from non-members. This distinguishes it from a free trade area, where each member keeps its own separate tariff against outside countries.

  1. AMembers trade freely among themselves and also adopt a common external tariff on imports from non-membersCorrect
  2. BMembers remove tariffs among themselves but each keeps its own tariff against non-members
  3. CMembers allow free movement of labour and capital but retain separate tariffs on all trade
  4. DMembers adopt a common currency but impose tariffs on each other's goods

Explanation

A customs union combines free internal trade with a common external tariff. In a free trade area, each member keeps its own tariff against non-members, which is why the second option describes a free trade area and not a customs union. The other options describe a common market or monetary union features.

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