What Is A Customs Union Free Trade Agreement

Once the goods are cleared in one country, they can be shipped to other EU countries without further customs duties being imposed. (i) customs duties and other restrictive trade arrangements (with the exception of those authorised under Articles XI, XII, XIII, XIV, XV and XX) shall be abolished for almost all trade between the constituent territories of the Union, or at least for all trade in products originating in those territories and for the General Agreement on Tariffs and Trade; Part of the World Trade Organization framework defines a customs union as follows:[1] Figure 2 shows a simplified diagram of a free trade agreement. In a free trade agreement, both countries A and B do not impose customs duties on each other, but unlike a customs union, country A imposes a 5% customs duty on third countries, while country B imposes 15% and there is no common customs tariff. In this case, if a product imported into country A with a duty rate of 5 per cent is transported to country B, the product is subject to the 5 per cent duty and not to country B`s 15 per cent duty, which would result in the adimation of the goods in country A under a 5 per cent duty in country A. To avoid such circumvention, a free trade agreement usually sets the rules of origin to prove that the products actually come from country A. A common problem with customs unions is the complexity of determining the applicable rate of duty. The process is very expensive and time-consuming. Member States often find it difficult to forego trade in certain goods or services because another EU country produces them more efficiently. The problem is usually faced with developing countries and is an important issue that the UK is addressing during Brexit. Unlike free trade agreements, non-members of the union are subject to a common external tariff. When countries outside the Union trade with countries of the Customs Union, they must make a single payment (customs duties) on the goods that have crossed the border.

Once they are in the union, they can act freely and without additional tariffs. In addition to a common external tariff, an internal market also aims to reduce the use of non-tariff barriers such as different product safety rules and environmental standards, which are replaced by a common set of rules for trade in goods and services within the common market. A customs union is generally defined as a type of trading bloc consisting of a free trade area with a common external tariff. [1] Services also make up a large part of the UK economy at 78% and are not fully covered by a customs union, as they tend to face “non-tariff” barriers to trade. Customs unions are created through trade pacts in which the participating countries establish a common foreign trade policy (in some cases they use different import quotas). A common competition policy is also useful to avoid competition deficits. [2] One of the main reasons why a customs union is preferred to a free trade agreement is that the former solves the problem of trade shifting. This happens when a third country sells its goods to a country with low tariffs (free trade agreement), which are then resold to a country with high tariffs, resulting in trade distortions.

The existence of a common external tariff in customs unions makes it possible to avoid problems arising from tariff differences. Some countries, such as Britain in the nineteenth century and Chile and South Korea in recent decades, have made unilateral tariff cuts – reductions made independently and without mutual action by other countries. .