Theory question 110
International Economic OrganisationsSection B: answer four questions only from this section.
(a) What is a customs union? (b) State three advantages and two disadvantages of a customs union.
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(a) A customs union is an agreement among countries to remove tariffs and other trade barriers among themselves and to adopt a common external tariff against non-members
(b) Advantages (any three): wider market and economies of scale
Increased trade among members
Specialisation according to comparative advantage
Attracts foreign investment
Greater bargaining power with other countries
Disadvantages (any two): loss of customs revenue
Trade diversion from cheaper non-member sources
Industries concentrate in more developed members
Weaker industries in some members may collapse
Loss of sovereignty over trade policy
Define a customs union, then give three advantages and two disadvantages.