Unit VIII. Customs union

✔ Do you know any customs unions? What is the purpose of their creation?

✔ What are the benefits and drawbacks of a customs union?

✔ Consider how the customs union affects you as a citizen/consumer. Consider how the customs union could affect your future job and career.

Text a. Customs union: what is it?

I. Read the article and give synonyms for the underlined words. Use the dictionary of synonyms or/and the dictionary of economic terms.

A customs union, a trade agreement by which a group of countries charges a common set of tariffs to the rest of the world while granting free trade among themselves. It is a partial form of economic integration that offers an intermediate step between free-trade zones (which allow mutual free trade but lack a common tariff system) and common markets (which, in addition to the common tariffs, also allow free movement of resources such as capital and labour between member countries). A free-trade zone with common tariffs is a customs union.

A customs union is a type of trade bloc which is composed of a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases they use different import quotas. Common competition policy is also helpful to avoid competition deficiency.

Purposes for establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries. It is the third stage of economic integration.

Customs union is established through trade pact.

A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where regional barriers to trade (tariffs and non-tariff barriers) are reduced or eliminated among the participating states.

One of the first economic blocs was the German Customs Union (Zollverein) initiated in 1834, formed on the basis of the German Confederation and subsequently German Empire from 1871. Surges of trade bloc formation were seen in the 1960s and 1970s, as well as in the 1990s after the collapse of Communism. By 1997, more than 50% of all world commerce was conducted under the auspices of regional trade blocs. Economist Jeffrey J. Scott of the Peterson Institute for International Economics notes that members of successful trade blocs usually share four common traits: similar levels of per capita GNP, geographic proximity, similar or compatible trading regimes, and political commitment to regional organization.

Advocates of worldwide free trade are generally opposed to trading blocs, which, they argue, encourage regional as opposed to global free trade. Scholars and economists continue to debate whether regional trade blocs are leading to a more fragmented world economy or encouraging the extension of the existing global multilateral trading system. Trade blocs can be stand-alone agreements between several states (such as the North American Free Trade Agreement (NAFTA) or part of a regional organization (such as the European Union). Depending on the level of economic integration, trade blocs can fall into different categories, such as: preferential trading areas, free trade areas, customs unions, common markets and economic and monetary unions.

List of customs unions

Every Economic union, Customs and monetary union and Economic and monetary union has also a Customs Union.

Agreement Date (in force) Recent reference

Andean Community (CAN) 1988-5-25 L/6737

East African Community (EAC) 2005-1-1 WT/COMTD/N/14

Customs Union of Belarus,

Kazakhstan and Russia 2010-07-1

EU — Andorra 1991-7-1 WT/REG53/M/3

EU — San Marino 2002-4-1

EU — Turkey 1996-1-1 WT/REG22/M/4

Israel — Palestinian Authority 1994

Southern Common Market (MERCOSUR) 1991-11-29 WT/COMTD/1/Add.17

Southern African Customs Union (SACU) 1910 WT/REG231/3

Switzerland — Liechtenstein 1924

Additionally the autonomous and dependent territories, such as some of the EU member state special territories, are sometimes treated as separate customs territory from their mainland state or have varying arrangements of formal or de-facto customs union, common market and currency union (or combinations thereof) with the mainland and in regards to third countries trough the trade pacts signed by the mainland state.

II. Translate the following phrases into Russian. Make up sentences with them describing the notion of customs union.

1) set up common external trade policy, 2) competition deficiency, 3) surges,

4) under the auspices, 5) geographic proximity, 6) stand-alone agreement.

III. Answer the following questions.

1. What is a customs union? Its purpose, its goals?

2. What is a trade bloc?

3. What examples of trade blocs do you know?

4. Why are advocates of free trade opposed to trading blocs?

IV. With the vocabulary from the article give the gist of it.