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Customs Union Definition

Customs Union Definition

The customs unions is an essential part of many state’s trade associations. By definition, this is a form of trade agreements that bind two or more countries. It, therefore, means that the parties decide not to impose various tariffs such as a tax on their imports or each other’s products. They, however, agree to impose the same elements to common external tariffs from other states outside of their trade unions.

A Little More on What Is A Customs Union

A customs union is a crucial step in the growth trajectory of the global interaction of various national economies. As such, the union has a political structure that is entered into between two or more countries to create a free trade policy and zone for various member countries while using a similar strategy concerning trade policy to establish a platform for nonmembers. A customs union tries to create a common market and practice for free trade between states while utilizing the same strategy on trade policy with the nonmembers. Member countries are often allowed to agree to limit imports of various goods as well as services through a trade quota.

Proposed

Here are a few proposed members of the customs unions.

2010- Southern African Development Community (SADC) – The Southern African Development Community was formed in 1980 as a coordinating development conference. It transformed into a central development community in 1992 thereby becoming an inter-governmental organization whose objective is to promote sustainability as well as equitable economic development and socio-economic development via efficient, production systems. Moreover, SADC enhances more profound corporation alongside integration and good governance among the existing fifteen Southern African Member States.

2011 -Economic Community of Central African States (ECCAS)-In December 1981, at a critical Summit meeting held by the leaders of the Central African Customs and Economic Union, it was agreed that it was vital to form a broader economic community of the Central African states. As such, ECCAS was founded on the 18 October 1983 by members of the UDEAC alongside members of the Economic Community of the Great Lakes States and Burundi, Rwanda. Principe and Sao Tome joined the forum too. ECCAS started operating in 1985. However, it was a bit inactive for several years following a few financial constraints that included non-payment of membership fees as well as the conflict in the Great Lakes area.

2015 -Arab Customs Union (ACU) [14] – The Arab customs union refers to a customs union announced at the prestigious Arab League in the 2009 Arab Economic as well as Social Development Summit in Kuwait with the intention to achieve a unique functional customs union by 2015. The union also aimed at reaching an Arab common market by 2020 while increasing the inter-Arab trade as well as integration. The proclamation announcement was made by the head of the Arab Customs Union Committee.

2019 – African Economic Community (AEC) – Even before founding the Organization of African Unity, African leaders had identified the need and requirement for cooperation as well as integration among African countries particularly in the economic, social, as well as cultural fields and how indispensable they were to the accelerated transformation as well as sustained development of the African continent. From the early 1960s, various member states were often encouraged to combine their economies into a significant regional market that can, in the long run, form a single unit of the African-wide economic union.

2020 Australia–New Zealand (Closer Economic Relations) – The New Zealand Closer Economic Relations Trade Agreement is also known as the CER Agreement. It’s one of the most comprehensive and detailed bilateral free trade agreements that have been formed, and it covers substantially all trans-Tasman trade in goods such as agricultural products. The provision of the deal is the formation of a new World Trade Organization that’s a consistent Free Trade Area.

Defunct

Customs and Economic Union of Central Africa (UDEAC) – superseded by CEMAC

The Customs and Economic Union of Central Africa trace its roots the French traditions where it was formed as customs unions with free trade in between its members as well as a standard external tariff for various imports from different countries. UDEAC started to operate in 1985. However, it became inactive for many years following its financial predicament.

  •         1925 French Customs Union – over occupied Territory of the Saar Basin

The famous Territory of the Saar Basin was a region of the German landscape prominently occupied by the United Kingdom as well as France from 1920 to 1935. The union had its flagship that had been adopted in 1920. Out of the shores of Bavaria, Saar Territory was created.

  •         The former Zollverein of the Holy Roman Empire and the succeeding German confederations- In 1815, the Congress of Vienna split the German states into 39 cities. It was mentioned that the Vienna Settlement would transform nationalism. But, Germany was unified by Prussia. This could imply that the Zollverein was the most crucial factor in the German Unification. It was vital in strengthening Prussia while developing nationalism among different states in Germany. Hence, in 1818, a customs union was formed by the Prussia.
  •         Steuerverein or Tax Union in north-west Germany-The Tax Union is also known as the ‘Steuerverein‘‘and was launched in 1834 as a significant customs union and the first of such in the Duchy of Brunswick. Hanover would later join the German Customs Union in 1854 after negotiating a remarkable operating term with Prussia. Because they faced isolation, Oldenburg was the next one in line in 1854. The move ended the Steuerverein
  •         Customs Union between Lebanon and Syria- Lebanon and Syria relations was formed in October 2008 when the President of Syria, Bashar Assad imposed a decree to foster diplomatic relations with Lebanon. That was the first and only time since the countries gained independence from France. The two were included in one administrative entity.

WTO Definition

The World Trade Organization maintains its ground as the only international organization dealing with various rules of trade between nations. At the core of this organization, there are major defining agreements negotiated as well as signed by leading trade nations as well as ratified in their parliaments. The objective is to facilitate the procedures of goods and services, exporters, as well as importers, carry out their business. Here are some of the policies that govern the World Trade Organization:

Various representatives of member governments undertake duties of the World Trade Organization. However, its roots lie in the daily operations of the industry. Trade policies and negotiating positions are prepared in capitals with careful observation into advice from different private firms, farmers, consumers, as well as other groups. Most countries own a diplomatic mission in the organization. All too often, representatives of the organization are sent directly from different capitals to pass their government’s views across.

References for Customs Union

Academic Research on Customs Union

  • A new look at customs union theory, Cooper, C. A., & Massell, B. F. (1965). The economic journal, 75(300), 742-747. This paper addresses the new look at customs union theory where researchers have concluded that customs unions may bring forth trade creation or diversion of trade portfolios. Viner draws a major conclusion between trade creation and recreation. Since trade creation entails a shift of consumption of the goods that have been imported, from a high-cost producer to a low-cost service provider. On the other hand, a trade diversion entails a significant switch from the low-cost external producer to the high-cost internal producer. The study argues that trade creation brings more welfare opportunities to a country.
  • Economies of scale and customs union theory, Corden, W. M. (1972). Journal of Political Economy, 80(3, Part 1), 465-475. This paper criticizes the traditional customs union theory because it lies in the failure of the elements when it comes to allowing the economies of scale. Research shows that Viner’s analysis fails to incorporate the effect of economies of scale. It’s also factual that regional integration leads to the creation of larger markets which enables firms to exploit a greater share of economies of scale. Therefore, customs union formation will highly lead to the exploitation of greater economies of scale. This will drive down the costs. With the main tariff barriers removed, internationally-scaled firms can benefit greater economies of scale from larger existing single markets created. Apart from the possibilities of price improvements and technical efficiency, and economies of scale, firms may be reaped when joining customs unions.
  • Customs union from a single-country viewpoint, Gehrels, F. (1956). The review of economic studies, 24(1), 61-64. In this paper, the research seeks to highlight the answer to the question as to why a country should join a customs trade union. The document addresses a couple of facts that may encounter encourage states to join a customs union. After a short statement of the economies of scale in the global landscape, researchers consider the main advantages as well as disadvantages of a country joining a customs union. Moreover, when customs unions are established, the flow of trade between countries involved as well as those outside the union will grievously be affected.
  • Is unilateral tariff reduction preferable to a customs union? The curious case of the missing foreign tariffs, Wonnacott, P., & Wonnacott, R. (1981). The American Economic Review, 71(4), 704-714. This paper analyses the effect of unilateral tariff reduction on the customs union. Being a trade agreement that serves as a treaty that a nation may impose without regards to others, such an arrangement may benefit the single state only. It is unilateral since other foreign countries have no choice regardless of the matter. Therefore, it’s not an open negotiation. UTR leads to the great formation of a customs union.
  • Endogenous formation of customs unions under imperfect competition: open regionalism is good, Yi, S. S. (1996). Journal of International Economics, 41(1-2), 153-177. In this paper, we look at the statistical effects of customs unions formation on global welfare under the oligopolistic competition, accounting for various market sizes and the number of market sizes and marginal costs. The study builds a basic model representing four states and goes ahead to analyze the members as well as non-members welfare situation moving from tariff-ridden to a single customs union then onto a double customs union situation prior to investigating a free trade option.  Research also identifies conditions under which all states can improve under the formation of several customs unions.  
  • Recent developments in customs union theory: An interpretive survey, Krauss, M. B. (1972). Journal of economic literature, 10(2), 413-436. This paper looks at international trade and the different issues arising from the aspects that have been concerning numerous economists for quite some time. The case is of the recent developments in customs unions as well as the establishment of international trade on the ground of three main contentions namely differences in factor availability, the profitability of the global division and the comparative costs difference in the production of commodities in different countries and unions. It’s these specific fundamentals that led to the creation of relative costs doctrine in the theory of international trade.
  • On Turkey’s trade policy: Is a customs union with Europe enough? Mercenier, J., & Yeldan, E. (1997). European Economic Review, 41(5-Mar), 871-880. This paper highlights the impact of removing all Tunisian tariffs on imports from the EU while working hard to maintain protection on imports from the rest of the world is primarily evaluated using a computable general equilibrium model. Competitive as well as Cournot oligopolistic commodities market structures with and without barriers to entry and exit are also considered. It’s established that a free trade agreement improves the welfare of a country in many cases. This means that there will be maximum gains under oligopoly as well as free entry and exit. At the sectoral level, the free trade arrangement enables different states to gain from agriculture as well as services.
  • The economic theory of customs union, Johnson, H. G. (1998). International Economic Integration: Theory and measurement, 1, 184. This paper analyses J. Viner’s theory of customs union. It states that before his initiation, there was a general belief that the customs union raises the level of welfare as a customs union is a movement towards freer trade at least within a specified area. Viner suggested that the conclusion regarding the increase in welfare because of a customs union isn’t necessarily valid. He also analyzed the production effects of various customs unions through the concepts of trade creation as well as trade diversion. The works of other researchers such as Meade, Lipsey, Lancaster, and others analyzed the consumption effects.
  • The new Southern African customs union agreement, Kirk, R., & Stern, M. (2005). World Economy, 28(2), 169-190. This paper analyzes the evolution of the Southern African Customs Union tracing it from the inception in 1889 at the convention and the world’s first customs union to its present status. Although the union has been operated under different agreements and contracts, which have been negotiated as well as renegotiated over the past few years, the research study analyzes the deals of 1889, 1910, 1969, as well as 2002 as some of the main union’s transformations. It’s also observed that SACU has vastly evolved from a geopolitical organization with a repressive colonial foundation to a well-integrated regional trading bloc that is perceived as a possible springboard.
  • Has European customs union agreement really affected Turkey’s trade?, Neyaptı, B., Taşkın, F., & Üngör, M. (2007). Applied Economics, 39(16), 2121-2132. This paper looks closely into the relationship between Turkey and the EU. The two have been in a customs union from 1995, and both sides have recognized the fact that this arrangement needs updating to rectify design deficiencies that are often undermining its operational effectiveness to maintain a significant pace with the new generation of trade agreements that the EU recently signed. It has been noted that Turkey aspires to have a slightly stronger voice in the policy formulation of the EU. It also aspires to make sure that it’s included in future EU free trade arrangements.
  • Competitiveness of Turkish SMEs in the customs union, Erzan, R., & Filiztekin, A. (1997). European Economic Review, 41(3-5), 881-892. This paper looks at the modernization of the current customs union agreement with the EU and how crucial it is not just for Turkey but for Malta too. It would also provide firms in Malta with broader access to the Turkish market. In as much as the update of the customs union with the EU is essential for Turkey, it’s also of the same importance for Malta. It’s highly assumed that the impact of these unions will be severe on small and medium scale businesses.
  • The theory of customs unions: A general survey, Lipsey, R. G. (1960). The economic journal, 70(279), 496-513.  This paper presents a method for the decomposition of the impact of customs unions into the trade-diversion and consumption impacts where the model is used as the primary framework within which Viner’s original customs union analysis is investigated. The impending issues examined include whether Viner’s initial customs-union analysis makes the presented assumptions about production as well as consumption which are often attributed to it by conventional wisdom.

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