A customs union creates trade and diversions that contribute to economic integration. The pros and cons of customs unions are listed below. Table 3 lists a number of important examples of different types of EDP between countries in our economic sample.31 The most common form of preferential regime is the Free Trade Agreement (FTA). The United States participates in a series of free trade agreements, including NAFTA (with Canada and Mexico) and bilateral free trade agreements with Australia, Colombia and Korea. The European Union, with its 28 Member States, is an example of a customs union. The EU also has its own customs union with Turkey (joint external tariffs on tariffs on non-EU markets) and the EU has a number of free trade agreements (no customs union) with other countries such as Colombia, Egypt, Korea, Mexico and South Africa. At the Norway-Sweden border, there are some customs controls, although they are both members of the internal market to control products originating from outside Norway. The relevant provisions of the GATT are contained in Article XXIV. Paragraph 4 contains a horrifying language on trade liberalization within the enterprise, instead of increasing barriers for outsiders. Paragraph 5 then states that “the provisions of the [GATT] do not prevent … the establishment of a customs union or free trade area or the adoption of an interim agreement to ensure that unions and free trade zones are not prohibited by the obligation under Article I of the MFN.
The effectiveness of a customs union is measured by the creation of trade and the diversion of trade. The creation of business results occurs when more effective union members sell to less effective members, leading to better allocation of resources. On the other hand, thanks to decision 1/2000 of the CE-Turkey Customs Cooperation Committee of 25.07.2000 (JO L 200 of 25.07.2000). The customs union allows goods that meet the conditions of free movement within the customs union, but are negotiated between the EC and Turkey through other countries in the pan-European system of accumulation, provided that evidence of Community or Turkish origin is provided in one of the countries concerned. The simplest rule, and the one that has received the most attention in the literature, is a rule that prohibits RTAs. Would the world be more efficient if all agreements were to be multilateral? In this section, I am talking about a number of recent documents that have looked at this issue. The main feature of the customs union is that Member States have not only removed trade barriers and introduced free trade, but have also tariffed a common external tariff. In other words, the members of the customs union decide not only to agree on trade barriers, but also to establish a common foreign and trade policy.  The GATT stipulates that the customs union, if not created immediately but phased out over a specified period of time, must be completed within a reasonable period of time, which generally does not exceed ten years.  The increase in the number of EDPs with non-economic provisions and the growing evidence of their effects suggests that it is important to incorporate them into standard models of political disposition. Given the diversity of the issues discussed above, this seems difficult until we discover that some of them have a common characteristic: non-financial international externality. Ista (2007) incorporates this feature into a business model to deduce incentives for EDPs.
It shows that non-financial externalities can facilitate the formation of EDPs for two reasons. First, it increases the range of issues on which they can negotiate, which is particularly important between countries of asymmetric economic size. Second, this question link improves the ability to impose cooperation. The model provides forecasts for the formation of agreements and the interaction between preferential and multilateral policies.