customs union

The General Agreement on Tariffs and Trade, part of the World Trade Organization framework defines a customs union in the following way:

{{blockquote|text=(a) A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, so that

(i) duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories, and,

(ii) subject to the provisions of paragraph 9, substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union;}}

The German Customs Union, the Zollverein, which was established in 1834, and gradually developed and expanded, was a customs union organization that appeared earlier and played a role in promoting German economic development and political unification at that time. Before the establishment of the unified German Empire in the 1870s, there were checkpoints between and within the German states, which hindered the development of industry and commerce. In 1818, Prussia took the lead in abolishing the customs duties in the mainland; it was followed by the establishment of the North German Customs Union in 1826. Two years later, two customs unions were established in the states of South Germany.{{Cite journal|last=Flaherty|first=Jane|s2cid=158847890|date=2018|title=Tariff Wars and the Politics of Jacksonian America by William K. Bolt|journal=Journal of Southern History|volume=84|issue=4|pages=981–982|doi=10.1353/soh.2018.0262|issn=2325-6893}} It was brought into action by the initiative of Prussia and joined by most of the German states. Pre-modern conditions ( 30+ currencies, trade barriers etc.) were viewed as an obstacle to economic exchange and growth by the new commercial classes, who argued for the creation of a unified economic territory allowing the unhindered movement of goods, people and capital.{{cn|date=April 2025}}

In 1834, 18 states joined to form the German Customs Union with Prussia as the leader.{{cn|date=April 2025}} Thereafter, this alliance was further expanded to all German-speaking regions{{citation needed|date=November 2020}} and became the All-German Customs Union. The contents of the alliance convention included: abolishing internal tariffs, unifying external tariffs, raising import tax rates, and allocating tariff income to all states in the alliance in proportion. In addition, there is a customs union between France and Monaco, which was established in 1865.{{cn|date=April 2025}}

A customs union was established by Switzerland and Liechtenstein in 1924, by Belgium, the Netherlands, and Luxembourg in 1948, by the countries of the European Economic Community in 1958, and by the Economic Community of Central African States in 1964.{{cn|date=April 2025}} At that time, the European Free Trade Association was separate from the European Economic Community Customs Union.{{cn|date=April 2025}} Free trade within the former was limited to industrial products, and no uniform tariffs were imposed on countries outside the Union.{{Cite journal|date=2002|title=Discussion|journal=Brookings Trade Forum|volume=2002|issue=1|pages=227–230|doi=10.1353/btf.2003.0003|issn=1534-0635}}{{Cite book|last=Chang|first=Ha-Joon|chapter=Industrial Policy: Can Africa do It?|date=2013|title=The Industrial Policy Revolution II|pages=114–132|publisher=Palgrave Macmillan UK|doi=10.1057/9781137335234_5|isbn=978-1-137-37450-9}}

The main feature of a customs union is that the member countries not only eliminate trade barriers and implement free trade, but also establish a common external tariff. In other words, in addition to agreeing to eliminate each other's trade barriers, members of a customs union also adopt common external tariffs and trade policies."Free Trade". IGM Forum. 13 March 2012. GATT stipulates that if the customs union is not established immediately, but is gradually completed over a period of time, it should be completed within a reasonable period, which generally does not exceed 10 years.

The exclusive protection measures of a customs union include the following:{{cite book |last=Simonova|first=Aleksandra|chapter=Hackerspaces and Technoparks in Moscow|date=2019|title=From Russia with Code|publisher=Duke University Press|doi=10.1215/9781478003342-007|isbn=978-1-4780-0334-2|s2cid=201508480 }}

• Reduction of tariffs until the tariffs within the union are eliminated. In order to achieve this goal, the union often stipulates that the member countries must transition from their current tariff rates between member countries to the unified tariff rates stipulated by the union in stages within a certain period of time, until finally aobolishing tariffs.{{cn|date=April 2025}}
• Formulation of a unified foreign trade policy and foreign tariff rates. Members must alter their original foreign tariff rates within the prescribed time, and eventually establish a common external tariff; and gradually unify their foreign trade policies, such as foreign discrimination policies and import quantities{{what?|date=April 2025}}.{{cn|date=April 2025}}
• Formulation of unified protective measures, such as import quotas, health and epidemic prevention standards, etc.{{Cite journal|last1=Diamond|first1=Peter A.|last2=Mirrlees|first2=James A.|s2cid=153968075|date=2002|title=Optimal Taxation and The Le Chatelier Principle|journal=SSRN Working Paper Series|doi=10.2139/ssrn.331300 |ssrn=331300|issn=1556-5068|hdl=1721.1/63998|hdl-access=free}}

• A customs union reduces the national sovereignty of the member countries by taking over their power to set tariffs.

Economic effects of customs unions can generally be grouped into static effects and dynamic effects.{{Cite web|title=Implications of static and dynamic effects of economic integration for investment inflows and outflows using theories on industrial location: A theoretical debate – Nova Science Publishers|date=10 July 2021 |url=https://novapublishers.com/implications-of-static-and-dynamic-effects-of-economic-integration-for-investment-inflows-and-outflows-using-theories-on-industrial-location-a-theoretical-debate/|access-date=2021-09-20|language=en-US}}

There are trade creation effects and trade diversion effects. The trade creation effect refers to the benefit generated by the transfer of domestic production to other countries in the union with lower costs. The trade diversion effect refers to the loss incurred when a product is imported from a non-member country with lower production costs to a member country with a higher cost. This is the price of joining the customs union. When the trade creation effect is greater than the transfer effect, the combined effect on the member countries is a net gain, which boosts the economies of the member countries; otherwise, it is a net loss and a decline in economic terms.{{cn|date=April 2025}}

The trade creation effect is usually regarded as a positive effect. This is because the domestic production cost of country A is higher than the production cost of country A 's imports from country B. The Customs Union made Country A give up the domestic production of some commodities and change it to Country B to produce these commodities. From a worldwide perspective, this kind of production conversion improves the efficiency of resource allocation.{{Cite conference |last=Smirnov|first=Valery|date=2019-03-29|title=Management of Food Import Substitution in Russia |conference=International Scientific Conference "Social and Cultural Transformations in the Context of Modern Globalism" |series=The European Proceedings of Social and Behavioural Sciences|pages=805–811|publisher=Cognitive-Crcs|doi=10.15405/epsbs.2019.03.02.92|doi-access=free}}

The customs union does not only bring static effects to member states, but also brings some dynamic effects. Sometimes, these dynamic effects are more important than the static effects, which has an important impact on the economic growth of member countries.{{what?|date=April 2025}}

1. One dynamic effect of a customs union is the large market effect (or economies of scale). After the establishment of a customs union, conditions are created for the mutual export of products between member countries. This expansion of the market promotes increases in production, which reduce costs.
2. The establishment of a customs union promotes competition in the market, by allowing companies from across the union to compete on equal terms. As a result, enterprises will tend to increase research and development investment and continuously reduce production costs, thereby creating a strong competitive atmosphere.{{Cite book|last1=Krugman|first1=Paul|title=Volkswirtschaftslehre|last2=Wells|first2=Robin|date=2017|publisher=Schäffer-Poeschel|doi=10.34156/9783791039237|isbn=978-3-7910-3923-7}}
3. The establishment of a customs union helps to attract foreign direct investment, both by increasing the size of the market and putting producers in non-member states at a disadvantage. The establishment of a customs union implies the exclusion of products from non-members.

File:World Customs Unions.svg}}{{legend|#fac14cff|Eurasian Customs Union}}{{legend|#00ccffff|East African Community}}{{legend|#aa0000ff|West African Economic and Monetary Union}}{{legend|#ff2a2aff|Southern African Customs Union}}{{legend|#66ff00ff|Economic and Monetary Community of Central Africa}}{{legend|#008f5aff|Mercosur}}{{legend|#fede0bff|Andean Community}}{{legend|#ff00ffff|Caribbean Community}}{{legend|#352c96ff|Central American Common Market}}{{legend|#aa7b2dff|Gulf Cooperation Council}}{{legend|#ff5599ff|Switzerland–Liechtenstein}}{{Legend|#ff7f2aff|United Kingdom–Crown Dependencies Customs Union}}]]

Additionally, the autonomous and dependent territories such as some of the EU member state special territories are sometimes treated as separate customs territories from their mainland states 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 through the trade pacts signed by the mainland state.EU Overseas countries and some other territories participate partially in the EU single market per [http://eur-lex.europa.eu/en/treaties/dat/12002E/htm/C_2002325EN.003301.html part four of the Treaty Establishing the European Community] {{Webarchive|url=https://web.archive.org/web/20131116105433/http://eur-lex.europa.eu/en/treaties/dat/12002E/htm/C_2002325EN.003301.html |date=16 November 2013 }}; some EU Outermost Regions and other territories use the Euro of the currency union, others are part of the customs union; some participate in both unions and some in neither. Territories of the United States, Australian External Territories and Realm of New Zealand territories share the currency and mostly also the market of their respective mainland state, but are generally not part of its customs territory.

The European Union is a customs union and therefore sets a common external tariff.

• 2010 {{Flagicon image|Flag of SADC.svg}} Southern African Development Community (SADC)
• 2011 Economic Community of Central African States (ECCAS)
• 2015 {{Flagicon image|Flag of the Arab League.svg}} Arab Customs Union (ACU){{cite web|url=http://www.gulf-daily-news.com/NewsDetails.aspx?storyid=240423|title=Leaders set to approve Arab customs union|newspaper=Gulf Daily News|date=18 January 2009|access-date=15 May 2009|archive-date=2 April 2015|archive-url=https://web.archive.org/web/20150402093804/http://www.gulf-daily-news.com/NewsDetails.aspx?storyid=240423|url-status=dead}}
• 2023 {{Flagicon image|Flag of the African Union.svg}} African Economic Community (AEC)

• The Zollverein in the German states (1834–1919) – Remained in effect after German unification and not dissolved until superseded by the Weimar Constitution of 1919.
• {{Flagicon|Austria-Hungary}} {{Flagicon image|Flag of Liechtenstein (1852–1921).svg}} – Customs union between Austria (later Austria–Hungary) from 1852 to 1918. Was replaced by the Liechtenstein–Switzerland customs union in 1924.
• Customs and Economic Union of Central Africa (UDEAC) – superseded by CEMAC
• {{Flagicon|French Third Republic}} {{Flagicon image|Flag of Saar 1920-1935.svg}} 1925 French Customs Union over occupied Territory of the Saar Basin
• {{Flagicon|Duchy of Brunswick}} {{Flagicon|Kingdom of Hanover}} {{Flagicon|Oldenburg}} Steuerverein or Tax Union in north-west Germany
• {{Flagicon image|Flag of Syria (1932–1958, 1961–1963).svg}} {{Flagicon image|Flag of Lebanon.svg}} Custom Union between Lebanon and Syria{{cite web|url=http://countrystudies.us/lebanon/100.htm|title=Lebanon – FOREIGN RELATIONS}}
• Czechia and Slovakia from the dissolution of Czechoslovakia on 1 January 1993 until superseded by both countries' accession to the European Union on 1 May 2004.

• The McGill University Faculty of Law runs a Regional Trade Agreements Database that contains the text of almost all preferential and regional trade agreements in the world. [http://www.ptas.mcgill.ca/ ptas.mcgill.ca]
• Michael T. Florinsky. 1934. The Saar Struggle. New York: The Macmillan Company.

• {{section link|Freedom of movement|Examples of free movement arrangements between countries}}
• European Customs Information Portal (ECIP)
• List of international trade topics
• Trade creation
• Trade diversion
• Open Balkan
• Craiovia Group
• CEFTA

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• Agreements Notified to the GATT/WTO and [http://www.wto.org/english/tratop_e/region_e/eif_e.xls in Force]

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Category:Commercial policy

Category:Economic integration

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