What is the main difference between a customs union and a free-trade area?
A) There are no restrictions on the movement of labor and capital among customs union member countries, whereas labor and capital cannot move freely among free-trade member countries.
B) Customs union member countries adopt common tariffs against nonmembers, whereas free-trade area member countries maintain their separate tariff structures against nonmembers.
C) There is free trade among customs union member countries but not among free-trade area member countries.
D) Customs union member countries have adopted a common currency, whereas free-trade member countries use their separate national currencies.

Question

Quizplus · Accepted Answer

The main difference between a customs union and a free-trade area is that customs union member countries adopt common tariffs against nonmembers, whereas free-trade area member countries maintain their separate tariff structures against nonmembers. In a customs union, there may also be restrictions on the movement of labor and capital among member countries, whereas in a free-trade area, there is typically free trade among member countries. However, this is not the defining difference between the two. The adoption of common tariffs against nonmembers is what sets a customs union apart from a free-trade area.

What Is the Main Difference Between a Customs Union and a Free-Trade