When member nations agree to trade completely free between themselves (no tariffs, no embargoes, no quotas) but impose common external trade barriers on all imports coming in from non-member nations, usually a common external tariff
Trade creation
Movement from a high-cost domestic producer to a low-cost producer within the customs union
A country joins a customs union
Tariffs between member nations are eliminated, leading to free trade
Tariff elimination between customs union members
Domestic supply contracts, demand extends, imports from other members increase
Trade creation
Gain of consumer surplus
Gain of world efficiency
When a country joins a customs union, it can now sell its goods and services without tariffs to all other member nations, creating a huge increase in market size and trade
The benefits of a country joining a customs union include economies of scale, greater market access, technological transfer, and lower prices for consumers
