Country X wants to encourage trade by eliminating trade barriers with the three countries along its borders.However,Country X wants each of the countries to be able to establish their own trade policies even though this may lead to problems with trade deflection.Which form of economic integration is Country X most likely considering?

Question

Quizplus · Accepted Answer

Country X is most likely considering a free trade area, which eliminates trade barriers among the member countries, but allows each country to make their own trade policies. This may lead to trade deflection, which is the diversion of trade away from the efficient producer and towards less efficient producers within the free trade area. A customs union eliminates trade barriers among member countries and establishes a common trade policy with non-member countries. A common market includes the free flow of goods, services, capital, and labor among member countries, in addition to a common trade policy with non-member countries. An economic union includes all the features of a common market, as well as a common monetary and fiscal policy.

Country X Wants to Encourage Trade by Eliminating Trade Barriers