Question

A customs union differs from a free trade area because it allows for

a. adoption of a common monetary and fiscal policy among member countries.
b. adoption of a common external trade policy.
c. mobility of factors of production among member countries.
d. harmonization of tax rates of member countries.
e. removal of barriers to the trade of goods and services among member countries.

Answer 1

The correct answer is b. adoption of a common external trade policy.

Step-by-step explanation:

A customs union is a form of regional economic integration where the member states agree to have a common external tariff. It is different from a free trade area in that it also implies the adoption of a common external trade policy. A customs union will usually have a series of mechanisms or institutions where delegates from every member state discuss and adopt the common external trade policy. According to the late economist Bela Balassa, the customs union represents the third stage of economic integration, after the free trade area and before the common market union.