Why does NAFTA create a free trade area as opposed to a customs union or a common market? Explain the difference by giving examples
What will be an ideal response?
Under a customs union, in addition to eliminating internal barriers to trade, members agree to the establishment of common external tariffs. For example, the EU and Turkey initiated a customs union in an effort to boost two-way trade. In a common market, in addition to the removal of internal barriers to trade and the establishment of common external tariffs, free movement of factors of production such as labor and capital is allowed.
NAFTA helps in promoting economic growth through tariff elimination, expanded trade and investment, as well as no restrictions on labor and other factor movements within the three nations. The benefits of continental free trade will enable all three countries to meet the economic challenges of the decades to come. The gradual elimination of barriers to the flow of goods, services, and investment, coupled with strong protection of intellectual property rights will further benefit businessmen, workers, farmers, and consumers. The agreement also leaves the door open for discretionary protectionism.
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