Question

Define economic integration and what the benefits of these Unions are for their member nations

Answer 1

Economic integration is an arrangement among nations that typically includes the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. It is a  process in which two or more states in a broadly defined geographic area reduce a range of trade barriers to advance or protect a set of economic goals.

A customs union involves the removal of tariff barriers between members, together with the acceptance of a common (unified) external tariff against non-members.Countries that export to the customs union only need to make a single payment (duty), once the goods have passed through the border. Once inside the union goods can move freely without additional tariffs. Tariff revenue is then shared between members, with the country that collects the duty retaining a small share.

Without a unified external tariff, trade flows would become distorted. If, for example, Germany imposes a 10% tariff on Japanese cars, while France imposes a 2% tariff, Japan would export its cars to French car dealers, and then sell them on to Germany, thereby avoiding 80% of the tariff. This is avoided if a common tariff is shared between Germany and France (and other members of the customs union.)A common external tariff effectively removes the possibility of arbitrage and, some would argue, is one of the fundamental building blocks of economic integration.