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What are customs union and monetary unions and how are they different from one another ? Your answer should reflect practical examples too. 10 marks

Question

What are customs union and monetary unions and how are they different from one another?

Your answer should reflect practical examples too. 10 marks

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Solution

A customs union is a form of economic integration where member countries agree to eliminate tariffs and other trade barriers among themselves, while maintaining a common external tariff on imports from non-member countries. This means that member countries can trade with each other freely, without any restrictions or tariffs, but they have a unified approach towards trade with non-member countries.

For example, the European Union (EU) is a customs union. Member countries, such as Germany, France, and Italy, can trade with each other without any barriers or tariffs. However, when it comes to trade with non-EU countries, they apply a common external tariff, which means that goods imported from outside the EU face the same tariff rates regardless of which member country they enter.

On the other hand, a monetary union is a deeper form of economic integration where member countries adopt a common currency and have a unified monetary policy. This means that

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