Country X and Country Y reach an agreement to boost bilateral trade. They agree to remove all barriers to trade of goods and services. They, however, are free to determine their own trade policies regarding nonmembers. Which level of economic integration is this an example of?Single choice
A
a customs union
B
a common market
C
an economic union
D
a free trade area

Question

Country X and Country Y reach an agreement to boost bilateral trade. They agree to remove all barriers to trade of goods and services. They, however, are free to determine their own trade policies regarding nonmembers. Which level of economic integration is this an example of?Single choice

A

a customs union

B

a common market

C

an economic union

D

a free trade area

BlackTom AI · Accepted Answer

The scenario describes two countries agreeing to eliminate barriers to trade for goods and services between themselves, while each country retains the right to set its own trade policy toward nonmembers. This pattern matches a free trade area, where member countries remove tariffs and restrictions among themselves but maintain independent external policies.

Option by option:
- a customs union: This would require not only removal of internal barriers but also a common external tariff and a shared trade policy with nonmembers. The described arrangement does not mention a common external tariff, so this is not a customs union.
- a common market: Beyond removing internal barriers, a common market enables free movement of factors of production (labor, capital) and often requires more harmonization of policies. The given text only mentions goods and services and no labor/capital mobility or policy harmonization, so this is not a common market.
- an economic union: An economic union involves deep integration, including a unified monetary policy, fiscal coordination, and possibly political institutions. The description does not indicate such level of integration, so this option is not accurate.
- a free trade area: This option correctly captures the essence of the scenario—trade barriers among the member countries are removed while each country keeps the freedom to conduct its own trade policy with nonmembers. This aligns with the standard definition of a free trade area.

Country X and Country Y reach an agreement to boost bilateral trade. They agree to remove all barriers to trade of goods and services. They, however, are free to determine their own trade policies regarding nonmembers. Which level of economic integration is this an example of?Single choice

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