What is a Customs Union?

By: BILL GOLDEN


posted on: June 13th, 2019

Customs unions are an important part of international trade in the modern world. They determine how easy it is for countries to import and export goods to each other. Several customs unions exist in Africa today. This includes the East African Community (EAC) and the South African Customs Union (SACU) – which is the oldest existing customs union in the world.

WHAT DOES IT MEAN TO BE A MEMBER OF A CUSTOMS UNION?

A customs union is an agreement between two or more countries to not apply taxes on imports (tariffs) on goods from each other’s countries. This makes it cheaper to trade within the customs union. Members of a customs union also agree to charge a ‘common external tariff’ on goods from the rest of the world. This means that all members of the customs union must charge the same tax on imports from countries that aren’t members. This can make some imports more expensive. This is because sometimes the common external tariff is greater than those in place before. Yet, this is counterbalanced by the benefits of cheaper trade with the other members.

Members of a customs union also often try to encourage trade by removing barriers to trade. This means making rules and regulations more similar, so that goods sold in one member country can be sold throughout the customs union. This can reduce the ability of governments to set their own rules, as now they have to agree with the other countries on which regulations to apply. However, it can be positive for businesses, who have access to a much larger market to sell in. Countries negotiating as part of a customs union can also get better trade deals from other countries than they might get when negotiating on their own.

WHAT ARE THE NON-ECONOMIC BENEFITS OF CUSTOMS UNIONS?

Customs unions are often used to improve relations between countries. This is because if countries’ economies are more connected, this can increase political and cultural connections. They are also often used as an early stage of political and economic union. In the East African Community, for example, the customs union is one of the first stages in a plan which will lead to stages such as a common currency, and a political union. Trade policies are often considered to be relatively easy for countries to agree on.

Customs unions are very important to understanding how trade works in the modern world as they shape the opportunities of businesses and consumers to export and import goods.

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