Nations enter into trading relationships which evolve into relationships that go beyond traditional aspects of trade. What follows are the stages of progression of those relationships which go from simple to more complex.
Free Trade Area - This is where nations eliminate tariffs and quantitative trade restrictions between them. This means that goods move between the member countries without tariffs or quotas to restrict their movement. Free Trade Areas include the North American Free Trade Agreement (NAFTA) and the European Free Trade Agreement (EFTA).
Customs Union - This is where member nationas both eliminate trade barriers between them and implement a common external tariff scheme. The problem with a Free Trade Area is that if members have different tariffs for goods coming from outside of the FTA then all goods will come through the member who has the lowest tariff. For instance, if France imposes a 5% tariff on VCR's, Germany 10% and Belgium 12%, all VCR's will come through France as it has the lowest tariff . In a Customs Union, all countries would impose the same tariff on VCR's. (This is how the EEC started out under the Treaty of Rome in 1957)
Common Market - This is a Customs Union which also includes free movement of goods and labor between member countries. (This is what EC 92 constituted)
Economic Union - This is a Common Market plus unification of fiscal, monetary and socioeconomic policies. (This is where the European Union is at present after the Maastricht Treaty)
Political Union - an economic union with a common government. (United States and Canada)
Remember that the formation of the EU involves market access issues only. The EU cannot legislate away cultural differences which means that the EU is not a uniform market.
What are the trends related to business which are occurring in the EU due to the single market?
Creation of the single market in the EU caused:
Lower costs for produ...