A customs union free trade agreement (CUFTA) is a type of economic agreement between two or more countries that aims to promote trade by reducing or eliminating tariffs and other barriers to trade.
In a CUFTA, participating countries agree to allow the free flow of goods and services across their borders without imposing tariffs or other trade barriers. However, unlike in a common market, which also allows for the free movement of people, a CUFTA does not typically include provisions for the free movement of labor.
While a CUFTA may seem similar to a standard free trade agreement (FTA), there is one key difference: a customs union. In a CUFTA, participating countries agree to adopt a common external tariff (CET) on imports from non-member countries. This means that goods imported into any member country will be subject to the same tariff rate, regardless of which member country they are ultimately destined for.
The primary benefit of a CUFTA is that it can help to facilitate trade between member countries by reducing the administrative burden of customs procedures and reducing the cost of goods. It can also help to prevent the formation of trade blocs that might exclude certain countries or regions from trade opportunities.
One potential downside of a CUFTA is that it can limit a participating country`s ability to negotiate its own trade agreements with non-member countries. This is because the CET applies to all goods imported from non-member countries, even those with which a member country might wish to sign a separate trade agreement.
Another potential challenge with CUFTAs is that they require a high degree of economic integration among member countries, which can be difficult to achieve. This is because establishing a common external tariff requires a significant amount of coordination and can be politically contentious.
Despite these challenges, CUFTAs remain a popular form of economic agreement among countries seeking to promote trade and economic cooperation. Some of the best-known CUFTAs include the European Union, the East African Community, and Mercosur.