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Customs Unions and Free Trade Areas

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Leon Fishman

on 12 October 2012

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Transcript of Customs Unions and Free Trade Areas

Free Trade Areas and Customs Unions The Necessity of Free Trade Agreements Where did it all Start GATT Article XXIV Free Trade Areas A group of countries that voluntarily agree to remove trade barriers between member countries but keep different external tariffs for non-members Customs Unions A group of countries that have similar functions of a Free Trade Area but agree to a common schedule of tariffs to non-member countries Territorial Application - Frontier Traffic - Customs Unions and Free Trade Areas

The contracting parties recognize the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between economies of the countries party to such agreements Recognizes and allows the use of trade agreements as an economic tool to boost trade Member Countries Non-Member Countries Member Countries Non-Member Countries Examples of Free Trade Areas North American Free Trade Agreement
Association of Southeast Asian Nations
ASEAN Important Concepts Trade Creation Trade Diversion When Lower tariffs leads to partner countries importing to replace high cost domestic production When trade is diverted from a more efficient exporter towards a less efficient one by the formation of a free trade agreement Examples of Customs Unions European Union
East African Community Conditions for Trade Creation If the tariff structure creates an environment where trading with a member country will be cheaper than producing the good itself. Conditions for Trade Diversion Tariff structure creates an environment where trading with a non-member is more expensive than trading with a member. Importance of Free Trade Agreements International trade agreements are necessary to achieve maximum efficiency
International actors use tariffs to achieve political goals
Help protect losers of free trade by forcing inefficiency
Non-member countries become economic losers
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