A customs union is generally defined as a type of trade bloc which is composed of a free trade area with a common external tariff.
Customs unions are established through trade pacts where the participant countries set up common external trade policy (in some cases they use different import quotas). Common competition policy is also helpful to avoid competition deficiency.
An economic union is a type of trade bloc which is composed of a common market with a customs union. The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of production (capital and labour) as well as a common external trade policy. When an economic union involves unifying currency, it becomes an economic and monetary union.
The purposes for establishing an economic union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries.
The European Union Customs Union (EUCU), formally known as the Community Customs Union, is a customs union which consists of all the member states of the European Union (EU), Monaco, and the British Overseas Territory of Akrotiri and Dhekelia. Some detached territories of EU states do not participate in the customs union, usually as a result of their geographic separation. In addition to the EUCU, the EU is in customs unions with Andorra, San Marino and Turkey (with the exceptions of certain goods), through separate bilateral agreements.
There are no tariffs or non-tariff barriers to trade between the members of the customs union and—unlike a free trade area—members of the customs union impose a common external tariff on all goods entering the union.
A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where barriers to trade (tariffs and others) are reduced or eliminated among the participating states.
Trade blocs can be stand-alone agreements between several states (such as the USMCA) or part of a regional organization (such as the European Union). Depending on the level of economic integration, trade blocs can be classified as preferential trading areas, free-trade areas, customs unions, common markets, or economic and monetary unions.
An economic and monetary union (EMU) is a type of trade bloc that features a combination of a common market, customs union, and monetary union. Established via a trade pact, an EMU constitutes the sixth of seven stages in the process of economic integration. An EMU agreement usually combines a customs union with a common market. A typical EMU establishes free trade and a common external tariff throughout its jurisdiction. It is also designed to protect freedom in the movement of goods, services, and people. This arrangement is distinct from a monetary union (e.g., the Latin Monetary Union), which does not usually involve a common market. As with the economic and monetary union established among the 27 member states of the European Union (EU), an EMU may affect different parts of its jurisdiction in different ways. Some areas are subject to separate customs regulations from other areas subject to the EMU. These various arrangements may be established in a formal agreement, or they may exist on a de facto basis. For example, not all EU member states use the Euro established by its currency union, and not all EU member states are part of the Schengen Area. Some EU members participate in both unions, and some in neither.
Territories of the United States, Australian External Territories and New Zealand territories each share a currency and, for the most part, the market of their respective mainland states. However, they are generally not part of the same customs territories.
A free trade area is the region encompassing a trade bloc whose member countries have signed a free trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce trade barriers, import quotas and tariffs, and to increase trade of goods and services with each other. If natural persons are also free to move between the countries, in addition to a free trade agreement, it would also be considered an open border. It can be considered the second stage of economic integration.
Customs unions are a special type of free trade area. All such areas have internal arrangements which parties conclude in order to liberalize and facilitate trade among themselves. The crucial difference between customs unions and free trade areas is their approach to third parties. While a customs union requires all parties to establish and maintain identical external tariffs with regard to trade with non-parties, parties to a free trade area are not subject to this requirement. Instead, they may establish and maintain whatever tariff regime applying to imports from non-parties as deemed necessary. In a free trade area without harmonized external tariffs, to eliminate the risk of trade deflection, parties will adopt a system of preferential rules of origin.
A common external tariff (CET) must be introduced when a group of countries forms a customs union. The same customs duties, import quotas, preferences or other non-tariff barriers to trade apply to all goods entering the area, regardless of which country within the area they are entering. It is designed to end re-exportation; but it may also inhibit imports from countries outside the customs union and thereby diminish consumer choice and support protectionism of industries based within the customs union. The common external tariff is a mild form of economic union but may lead to further types of economic integration. In addition to having the same customs duties, the countries may have other common trade policies, such as having the same quotas, preferences or other non-tariff trade regulations apply to all goods entering the area, regardless of which country, within the area, they are entering.
The main goal of the Custom Unions is to limit external influence, liberalize intra-regional trade, promote economic development and diversification in industrialization in the Community.
Liechtenstein (/ˈlɪktənstaɪn/ , LIK-tən-styne; pronounced [ˈlɪçtn̩ʃtaɪn] ; Alemannic German: Liachtaschta), officially the Principality of Liechtenstein (German: Fürstentum Liechtenstein [ˈfʏʁstn̩tuːm ˈlɪçtn̩ʃtaɪn] ), is a doubly landlocked country in the Central European Alps. It is located between Austria to the east and north-east and Switzerland to the north-west, west and south. Formed in 1719, Liechtenstein became fully independent upon the dissolution of the German Confederation in 1866. Liechtenstein is a monarchy headed by the prince of Liechtenstein. Hans-Adam II, Prince of Liechtenstein has reigned over Liechtenstein since 1989. Liechtenstein is Europe's fourth-smallest country, with an area of just over 160 square kilometres (62 square miles) and a population of 41,389. It is the world's smallest country to border two countries, and is one of the few countries with no debt. Its official language is German.
Liechtenstein is divided into 11 municipalities. Its capital is Vaduz, and its largest municipality is Schaan. It is a member of the United Nations, the European Free Trade Association, and the Council of Europe. It is not a member state of the European Union, but it participates in both the Schengen Area and the European Economic Area. It has a customs union and a monetary union with Switzerland, with its usage of the Swiss franc. A constitutional referendum in 2003 granted the monarch greater powers, including the power to dismiss the government, nominate judges and veto legislation.
The European Union–Turkey Customs Union is a trade agreement between the European Union (EU) and Turkey. The agreement came into effect on 31 December 1995, following a 6 March 1995 decision of the European Community–Turkey Association Council to implement a customs union (Turkish: Gümrük Birliği) between the two parties. Goods may travel between the two entities without any customs restrictions. The Customs Union does not cover essential economic areas such as agriculture (to which bilateral trade concessions apply), services or public procurement.
In 1996, a free trade area was established between Turkey and the European Union for products covered by the European Coal and Steel Community. Decision 1/98 of the Association Council covers trade in agricultural products.
A common commercial policy involves several states coordinating some or all aspects of their trade policy.
It is sometimes agreed by treaty within a customs union. In the case of the European Union, a form of the EU's common commercial policy has been in place since 1957.