Customs Union Business Meaning
Members of a customs union are required to negotiate with third countries and organisations such as the WTO. This is necessary to maintain a customs union; but it also means that Member States are not free to negotiate their own agreements. A customs union creates the creation and diversion of trade that contributes to economic integration. Here are the advantages and disadvantages of customs unions. A customs union was founded in 1924 by Switzerland and Liechtenstein, in 1948 by Belgium, the Netherlands and Luxembourg, in 1958 by the countries of the European Economic Community and in 1964 by the Economic Community of Central African States. At that time, the European Free Trade Association was different from the Customs Union of the European Economic Community. Free trade within the former was limited to industrial products and no uniform customs duties were levied on countries outside the Union. [4] [5] In addition, autonomous and dependent territories, such as some of the special territories of EU Member States, are sometimes treated as separate customs territories from their continental states or have different arrangements of formal or de facto customs union, common market and monetary union (or combinations thereof) with the continent and vis-à-vis third countries through trade agreements signed by the continental state. [24] A customs union is not the same as an economic union. An economic union is not limited to goods. It extends to the free movement of money and workers between Member States, which a customs union does not do.
The European Union is both an economic union and a customs union. The main feature of the customs union is that member countries have not only removed barriers to trade and introduced free trade, but have also introduced a common external tariff. In other words, the members of the customs union not only agree on the mutual elimination of barriers to trade, but also adopt a common external customs and commercial policy. [6] The GATT provides that if the customs union is not established immediately but is completed gradually over a certain period of time, it must be completed within a reasonable period of time, which generally does not exceed 10 years. [3] However, membership of a customs union also has some drawbacks; The customs union will not only have a static impact on the Member States, but also dynamic effects on them. Sometimes this dynamic effect is greater than its static effect, which has a significant impact on the economic growth of member countries. [10] Unlike free trade agreements, non-union members are subject to a common external tariff. If countries outside the union trade with countries in the customs union, they must make a one-time payment (customs fee) for goods that have crossed the border. Once they are in the union, they can act freely without additional customs duties. Kazakhstan, Belarus, Armenia and Kyrgyzstan form a customs union with Russia and form the Eurasian customs union system.
The customs union began in Europe and is one of the organisational forms of economic integration. The customs union has two economic effects, static effects and dynamic effects. Some EU countries do not receive a fair share of customs revenue. This is common in countries such as the United Kingdom, which trade relatively more with countries outside the Union. Approximately 20% to 25% of tariff revenues are retained by the member collecting the revenues. It is estimated that the cost of collecting these revenues exceeds the revenue actually collected. In addition to the advantages, customs unions also have some disadvantages: the European Union (EU) is a customs union. The EU has also concluded customs union agreements with Turkey, Andorra and San Marino A customs union is a formal relationship between a group of countries that aims to reduce tariff and non-tariff barriers to trade between members while agreeing on a common external tariff for non-members. Members are likely to come from the same geographical region as in the case of the EU Customs Union and the Arab Customs Union.
The aim of a customs union is to facilitate free trade between Member States. The Union shall reduce the administrative and financial burden linked to barriers to trade and promote economic cooperation between nations. There are trade creation effects and trade diversion effects. The trade creation effect refers to the benefits generated by the products of domestic production with higher production costs for the production of the countries of the customs union with lower costs. The trade diversion effect refers to the loss incurred when a product is imported from a third country with lower production costs in a Member State where the costs are higher. This is the price to pay for joining the customs union. If the effect of trade creation is greater than the effect of transfer, the combined effect of membership of the customs union on member countries is the net gain, which means an increase in the level of economic prosperity of member countries; Otherwise, it is a net loss and a decline in the level of economic well-being. Faced with competition from other economies, domestic markets will be more inclined to increase their efficiency. Customs unions help promote growth and unite economies with liberal trade policies.
A customs union is an agreement between two or more neighbouring countries aimed at removing barriers to trade, reducing or abolishing customs duties. Tariffs are a common element in international trade. The main objectives of the imposition and elimination of quotas. These associations were defined by the General Agreement on Tariffs and Trade (GATT) and constitute the third stage of economic integration. A customs union is an agreement between two or more countries aimed at eliminating barriers to trade and reducing or eliminating customs duties. Members of a customs union generally apply a common external duty to imports from third countries. A customs union consists of a group of countries that agree: the German Customs Union, founded in 1834 and gradually developed and expanded, was a customs union organization that emerged earlier and later played a role in promoting German economic development and political unification. Before the founding of the United German Empire in the 1870s, there were checkpoints between and within German states that hindered the development of industry and commerce. In 1818, Prussia took the initiative to abolish customs duties on the continent; In 1826, the North German Customs Union was founded.