are customs unions good for economic integration
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). Examples of customs unions include the Zollverein, a 19th-century organization formed by several German states under Prussian leadership, and the European Union, which was a customs union at one point in its development but later achieved full economic integration as a common market. (See also international trade.) The theoretical considerations which we are concerned here apply to customs unions, a grouping which we have defined in terms of its tariff policy. The theory has being confined mainly to a study of the effects of customs union on welfare gains and losses which may arise from a number of different sources: The implication of this analysis is that customs unions will lead to detrimental effects if the countries are complementary in the list of goods they produce. If, on the other hand, the group of commodities that both countries produce under tariff protection is large, the scope for positive welfare effects is large. Other forms of economic integration include common markets, economic unions, and federations. Common markets allow free passage of labour, capital, and other productive resources by reducing or eliminating internal tariffs on goods and by creating a common set of external tariffs. When a customs union reaches agreement on removal of factor immobility within the union, then it is a common market. When a common market reaches agreement on coordination of national economic policies of the members, then it is an economic union. The union partner would then import from the cheaper source and there would be a case of trade diversion. Third, both countries forming the customs union produce the good, in which case one of the countries will then be secured for the more efficient industry and there will be trade creation. However, by selectively lowering tariffs to partners in a free-trade zone or customs union, the home country may allow a partner’s producers to sell the good at a lower price, even if the partner’s production costs are higher than the outsider’s. The net effect is to reduce trade with the efficient, low-cost producer. This trend was triggered by the EU market. integration. In both developed and developing countries, customs unions and free trade areas. (FTAs) continue to increase and expand. Today, they account for a considerable amount of. world trade (Figure15-1, 15-2). In the WTO, regional trade agreement (RTAs) is referred to as. customs unions, FTAs, and interim agreements. In this chapter, we use the term “regional. integration” to signify both RTAs and other forms of regional cooperation. Almost 90 percent. of the WTO Members are parties to such RTAs. Regional trade grouping or economic integration can take several forms representing different degrees of integration namely, free trade area, and customs union, and common market, economic union and complete economic integration.
Yes, customs unions is good for economic integration.