Question:
The main difference between a Free Trade Area (FTA) and a Customs Union (CU) is that:
(1) FTA members have a common currency, while CU members do not.
(2) CU members adopt a Common External Tariff against non-members, while FTA members do not.
(3) FTA members have free movement of labor, while CU members do not.
(4) CU is a political union, while FTA is only economic.
(5) There is no difference; they are synonymous.
Correct Answer:
(2)
Answer Explanation:
Both remove internal tariffs. However, in an FTA (like NAFTA), members keep their own tariffs for outsiders. In a Customs Union (like the EU’s initial stage), they act as a single block with the same tariff for outsiders.
Topic: International Trade Year: 2024
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