NAFTA is an example of which type of trading bloc?

NAFTA is an example of which type of trading bloc?

• A. Free-trade area
• B. Customs union
• C. Single market
• D. Economic union

Answer: (A)

Understanding the levels of economic integration helps explain why NAFTA fits a free-trade area. A free-trade area removes tariffs on goods traded between member countries while each country keeps its own external tariffs and trade policy. NAFTA eliminated most tariffs among the United States, Canada, and Mexico, but each country retained its own external tariffs and did not harmonize regulations across all members. It does not create a common external tariff (that would be a customs union), it does not allow free movement of labor or full harmonization of services (that would be a single market), and it does not coordinate monetary or fiscal policy (that would be an economic union). So NAFTA is a free-trade area.

Understanding the levels of economic integration helps explain why NAFTA fits a free-trade area. A free-trade area removes tariffs on goods traded between member countries while each country keeps its own external tariffs and trade policy. NAFTA eliminated most tariffs among the United States, Canada, and Mexico, but each country retained its own external tariffs and did not harmonize regulations across all members. It does not create a common external tariff (that would be a customs union), it does not allow free movement of labor or full harmonization of services (that would be a single market), and it does not coordinate monetary or fiscal policy (that would be an economic union). So NAFTA is a free-trade area.