(a) What is economic integration? (b) Outline the characteristics of a customs union.

Answer Details

(a) Economic integration is an arrangement in which two or more countries agree to co-operate and merge parts of their economies by reducing or removing trade barriers among themselves, so as to form a larger economic unit and enjoy mutual benefits such as a wider market and freer movement of goods and factors. Examples include ECOWAS and the European Union.

(b) Characteristics of a customs union:

• Member countries abolish tariffs and trade barriers on goods traded among themselves, allowing free internal trade.
• Members adopt a common external tariff against non-member (outside) countries.
• It creates a larger single market among members, encouraging trade and specialisation.
• There is usually a common commercial and trade policy towards the rest of the world.
• It is a deeper stage of integration than a free trade area (which lacks a common external tariff) but shallower than a common market (which also allows free movement of labour and capital).
• It often involves sharing of customs revenue and joint administration of external trade.