Question

The trading bloe that has eliminated all internal tariffs is (LO7) a) the European Union b) NAFTA c) Mercosur d) the World Trade Organization

Short answer

The correct answer is a) the European Union, as it is the trading bloc that has eliminated all internal tariffs among its member countries.

Step-by-step solution

Understand trading blocs and internal tariffs

A trading bloc is an agreement among countries within a geographical region to reduce or eliminate trade barriers, such as tariffs, import quotas, and non-tariff measures, to facilitate the exchange of goods and services among its members. Internal tariffs are taxes imposed by countries on imported goods and services from other member countries within a trading bloc. With this understanding, let's examine each option.

Evaluate Option a) European Union (EU)

The European Union (EU) is a political and economic union of 27 European countries. It has established an internal/single market with the free movement of goods, services, capital, and people. One of the key aspects of the EU is the elimination of internal tariffs among its member countries, which allows for seamless trade and economic integration. Therefore, the EU can be considered a trading bloc that has eliminated all internal tariffs.

Evaluate Option b) NAFTA

NAFTA, or the North American Free Trade Agreement, was a trade agreement between the United States, Canada, and Mexico that was in effect from 1994 to 2020. Its goal was to eliminate trade barriers, including tariffs, between its three member countries. Although NAFTA did significantly reduce or remove many internal tariffs, it did not completely eliminate all of them.

Evaluate Option c) Mercosur

Mercosur, or the Southern Common Market, is a regional trade bloc in South America, which currently consists of Argentina, Brazil, Paraguay, and Uruguay. Mercosur aims to facilitate trade among its member countries by removing trade barriers, including tariffs. Similar to NAFTA, while Mercosur has worked towards reducing tariffs, it has not eliminated all internal tariffs entirely.

Evaluate Option d) World Trade Organization (WTO)

The World Trade Organization (WTO) is an international organization that sets global trade rules and helps to settle trade disputes between countries. While the WTO’s primary goal is to promote free trade among its 164 member countries, it is not a regional trading bloc like the other options mentioned, and it has not eliminated all internal tariffs among its members.

Select the correct answer

Based on the evaluation of each option, the European Union (a) is the trading bloc that has eliminated all internal tariffs. Therefore, the correct answer is: a) the European Union

Key concepts

Trading Blocs

Trading blocs are special agreements between countries, usually in the same region, aimed at improving trade relations by reducing or removing various trade barriers. These barriers can include tariffs, which are taxes on imports, import quotas, which limit the amount of goods that can be imported, and other non-tariff measures.
Trading blocs aim to create a more favorable trade environment that allows the free flow of goods and services among member countries.
Some well-known trading blocs are:

• European Union (EU)
• North American Free Trade Agreement (NAFTA)
• Mercosur

These agreements often lead to economic benefits for member countries, such as increased trade, investment, and economic cooperation.

Internal Tariffs

Internal tariffs are taxes that member countries impose on goods and services imported from other countries within the same trading bloc. These tariffs can make imports more expensive, thus protecting domestic industries from foreign competition.
When countries within a trading bloc decide to eliminate internal tariffs, it allows goods and services to flow freely, reducing costs for businesses and consumers. This leads to increased trade and economic activity, as there are fewer financial barriers.
The European Union (EU) is one of the few trading blocs that has completely removed internal tariffs, helping its member countries trade with each other more efficiently.

Economic Integration

Economic integration refers to the unification of economic policies and regulations between different countries, primarily seen within trading blocs.
This process involves reducing trade barriers and aligning economic policies to facilitate seamless economic cooperation and stability. There are several levels of economic integration, each with varying degrees of cooperation:

• Free Trade Area: Countries agree to eliminate tariffs between themselves but maintain independent external tariffs.
• Customs Union: Along with eliminating internal tariffs, a common external tariff is adopted among member countries.
• Common Market: In addition to a customs union, factors like labor and capital move freely.
• Economic Union: Member countries harmonize economic policies, including currency and tax laws.

The European Union is an example of high-level economic integration, with policies that facilitate free movement of goods, services, capital, and people, achieving both a common market and economic union.