Customs Union

Definition

A customs union is a type of trade agreement between countries that eliminates tariffs and allows for the free movement of goods among member states while establishing a common external tariff on imports from non-member countries. This arrangement not only simplifies trade but also strengthens economic ties and promotes integration among the member states, as seen with the European Economic Community (EEC) formed by the Treaty of Rome in 1957.

5 Must Know Facts For Your Next Test

1. The Treaty of Rome established the European Economic Community (EEC) in 1957, which included the creation of a customs union among its six founding members: Belgium, France, Germany, Italy, Luxembourg, and the Netherlands.
2. The customs union was significant in reducing trade barriers between member states, which increased intra-community trade and economic growth.
3. By implementing a common external tariff, the customs union aimed to protect member industries from competition with non-member countries.
4. The customs union laid the groundwork for deeper economic integration in Europe, eventually leading to the creation of the European Union.
5. Over time, the success of the customs union helped foster cooperation on various political and social issues among member states.

Review Questions

• How did the establishment of a customs union through the Treaty of Rome impact trade among member states?
  • The establishment of a customs union through the Treaty of Rome significantly impacted trade among member states by eliminating tariffs and other trade barriers. This allowed goods to move freely across borders without additional costs, thus increasing intra-community trade. As a result, member countries experienced economic growth and strengthened their economic ties, creating a more integrated European market.
• Evaluate the role of the common external tariff in maintaining a customs union and its effects on non-member countries.
  • The common external tariff plays a crucial role in maintaining a customs union by providing uniformity in import duties applied to non-member countries. This tariff system protects member states' industries from competition with foreign products while promoting fair competition within the union. As a result, non-member countries often faced higher prices for their goods when entering the market, influencing their trade relations with customs union members.
• Discuss how the customs union established by the Treaty of Rome contributed to broader European integration and its implications for future political cooperation.
  • The customs union established by the Treaty of Rome served as a foundational step towards broader European integration by fostering economic cooperation among member states. This initial economic collaboration laid the groundwork for subsequent political cooperation through institutions like the European Union. The interconnectedness created by the customs union not only facilitated trade but also encouraged dialogue on shared policies and governance issues, ultimately transforming Europe into a more cohesive political entity.

Related terms

Common Market:

A common market is a type of trade bloc that allows for the free movement of goods, services, capital, and labor among member countries, extending beyond the features of a customs union.

Free Trade Agreement: A free trade agreement is a pact between two or more countries to reduce or eliminate trade barriers, such as tariffs and import quotas, without establishing a common external tariff.

Single Market: A single market refers to an integrated market allowing for the free movement of goods, services, capital, and people within a region, further enhancing economic collaboration among member states.