Final answer:
Countries X, Y, and Z have formed a Free Trade Area by eliminating tariffs, quotas, and preferences on most goods between them. Unlike a common market or economic union, a Free Trade Area allows each member to have their own trade policies with non-members.
Step-by-step explanation:
When Country X, Country Y, and Country Z agree to eliminate tariffs, quotas, and preferences on most goods between them, they form a Free Trade Area. This is the most basic level of economic integration, where member countries come together to allow the free flow of goods and services between them by removing most forms of trade barriers such as tariffs and quotas. However, unlike a common market or an economic union, a free trade area allows each country to maintain its own external trade policies towards non-members.
One example of progressive economic integration is the European Union (EU). After World War II, European leaders sought closer economic ties to prevent future conflicts. The EU started as a free trade association and evolved into a common market. Eventually, it became a full economic union, with not just a common currency, the euro, but also coordinated fiscal and monetary policies, and barriers removed to the mobility of goods, labor, and capital.
In contrast to a free trade area, a common market establishes not only internal free trade but also a common external trade policy among its members. An economic union goes even further by integrating economies to a greater extent, including harmonized laws and policies. Thus, while both a customs union and an economic union involve a common trade policy, the latter also involves coordinated broader economic policies, which is not characteristic of the arrangement described for Countries X, Y, and Z.