If Mexican tomatoes face a 20% U.S. tariff and a 25% Canadian tariff, but the U.S. and Canada maintain free trade between each other, what trade bloc do they form?
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Answer: A. free-trade area
Explanation
A free-trade area removes internal barriers while preserving national tariffs. Member nations retain complete autonomy over external trade policies with outsiders. Mexican tomatoes face distinct tariff rates because members set independent policies. Economic integration ranges from preferential trade areas up to full economic unions. A free-trade area allows zero internal tariffs among its participating member states. Customs unions add a common external tariff applied uniformly against non-members.
The North American Free Trade Agreement historically exemplified this trade structure. Understanding trade blocs helps analysts evaluate international trade policy negotiations. National sovereignty over external tariffs distinguishes free-trade areas from unions. Customs unions require members to adopt a unified external tariff schedule. Common markets additionally permit the free movement of labor and capital. Monetary unions share a single unified currency and central banking authority.
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