Types of trade agreement 2 / 5

Types of trade agreement

Types of trade agreement

Free trade area

  • There is no restriction on the movement of goods and services between countries

  • Individual countries can impose their own restrictions on non-member countries

  • For example, the North American Free Trade Agreement (NAFTA) is a free trade area that includes Canada, the USA and Mexico

Customs union

= Free trade area + the following features:

  • There are common external tariffs applying to imports from non-member countries into the union.

  • For example, Mercosur is a customs union comprising Argentina, Brazil, Paraguay, Uruguay and Venezuela.

Common and single markets

= Customs union + the following features:

  • There are free markets in each of the factors of production and a move to standardise market regulations (eg safety and packaging rules).

  • Where there are common policies on product regulation this is sometimes called a 'single market'.

  • Eventually a common market becomes a single market with no restriction of movement or regulatory differences.

  • For example a citizen in the European Union (EU) has the freedom to work in any other country of the EU.

Economic union

= Common markets + the following features:

  • Will involve a common Central Bank and a common interest rate and a single currency.

  • For example, within the EU, most member countries are part of the eurozone; they share a single currency and co-ordinate economic policies.

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