Which of the following is true regarding Custom Unions?

i. A customs union is a type of trade bloc which is composed of a free trade area with a differential external tariff

ii. The participant countries can use different import quotas

iii. It is the third stage of economic integration

Solution

A customs union is a type of trade bloc which is composed of a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases, they use different import quotas. Common competition policy is also helpful to avoid competition deficiency Purposes for establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries. It is the third stage of economic integration. Customs unions are established through trade pacts. In a Customs union, partner countries may decide to trade at zero duty among themselves, however they maintain common tariffs against rest of the world. An example is Southern African Customs Union (SACU) amongst South Africa, Lesotho, Namibia, Botswana and Swaziland. European Union is also an outstanding example.