Why is NAFTA a free-trade area requiring rules of origin rather than a customs union?
A) A free-trade agreement allows politically sensitive tariffs of each nation to remain unchanged.
B) A customs union also requires rules of origin.
C) The overall level of U.S. tariffs was much higher than the overall level of tariffs in Mexico and Canada.
D) The overall levels of tariffs in Canada, Mexico, and the United States are similar, making rules of origin irrelevant.

Question

Quizplus · Accepted Answer

A free-trade agreement allows each nation to maintain its politically sensitive tariffs. A customs union would require a common external tariff, eliminating each nation's ability to maintain its own tariffs. Rules of origin are still necessary for a free-trade agreement to ensure that goods from non-NAFTA countries do not receive preferential treatment. The overall levels of tariffs in each country are not relevant to the choice between a free-trade area and a customs union.

Why Is NAFTA a Free-Trade Area Requiring Rules of Origin