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44-430: Customs unions are a special type of free trade area. All such areas have internal arrangements which parties conclude in order to liberalize and facilitate trade among themselves. The crucial difference between customs unions and free trade areas is their approach to third parties. While a customs union requires all parties to establish and maintain identical external tariffs with regard to trade with non-parties, parties to

88-574: A customs union. The General Agreement on Tariffs and Trade , part of the World Trade Organization framework defines a customs union in the following way: (a) A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, so that (i) duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect to substantially all

132-567: A free trade area are not subject to this requirement. Instead, they may establish and maintain whatever tariff regime applying to imports from non-parties as deemed necessary. In a free trade area without harmonized external tariffs, to eliminate the risk of trade deflection, parties will adopt a system of preferential rules of origin . The term free trade area was originally meant by the General Agreement on Tariffs and Trade (GATT 1994) to include only trade in goods. An agreement with

176-421: A free trade area are relatively cheaper as compared to those with non-parties, free trade areas are conventionally found to be excludable. Now that deep trade deals will enhance regulatory harmonization and increase trade flows with non-parties, thus reduce the excludability of FTA benefits, new generation free trade areas are obtaining essential characteristics of public goods. Unlike a customs union , parties to

220-433: A free trade area creates trade which may not have otherwise existed. In all cases trade creation will raise a country's national welfare. Both trade creation and trade diversion are crucial effects found upon the establishment of a free trade area. Trade creation will cause consumption to shift from a high-cost producer to a low-cost one, and trade will thus expand. In contrast, trade diversion will lead to trade shifting from

264-437: A free trade area do not maintain common external tariffs, which means they apply different customs duties, as well as other policies with respect to non-members. This feature creates the possibility of non-parties may free riding preferences under a free trade area by penetrating the market with the lowest external tariffs. Such risk necessitates the introduction of rules to determine originating goods eligible for preferences under

308-451: A free trade area, a need that does not arise upon the formation of a customs union. Basically, there is a requirement for a minimum extent of processing that results in "substantial transformation" to the goods so that they can be considered originating. By defining which goods are originating in the PTA, preferential rules of origin distinguish between originating and non-originating goods: only

352-483: A lower-cost producer outside the area to a higher-cost one inside the area. Such a shift will not benefit consumers within the free trade area as they are deprived the opportunity to purchase cheaper imported goods. However, economists find that trade diversion does not always harm aggregate national welfare: it can even improve aggregate national welfare if the volume of diverted trade is small. Free trade areas as public goods Economists have made attempts to evaluate

396-647: A number of depositories of free trade agreements available either at national, regional or international levels. Some significant ones include the database on Latin American free trade agreements constructed by the Latin American Integration Association (ALADI), the database maintained by the Asian Regional Integration Center (ARIC) providing information agreements of Asian countries, and the portal on

440-496: A party to a free trade area has the incentive to use inputs originating in another party so that their products may qualify for originating status. Since there are hundreds of free trade areas currently in force and being negotiated (about 800 according to ITC's Rules of Origin Facilitator , counting also non-reciprocal trade arrangements), it is important for businesses and policy-makers to keep track of their status. There are

484-495: A similar purpose, i.e., to enhance liberalization of trade in services, is named under Article V of the General Agreement on Trade in Services (GATS) as an "economic integration agreement". However, in practice, the term is now widely used to refer to agreements covering not only goods but also services and even investment. The formation of free trade areas is considered an exception to the most favored nation (MFN) principle in

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528-555: A step further in requiring that initial collection, processing, and storage first occur within the national boundaries. In some cases, data about a nation's citizens or residents must also be deleted from foreign systems before being removed from systems in the data subject's nation. One of the first moves towards data localization occurred in 2005 when the Government of Kazakhstan passed a law for all ".kz" domains to be run domestically (with later exceptions for Google ). However,

572-520: A way to surveil their own populaces or to boost local economic activity. Technology companies and multinational organizations often oppose data localization laws because they impact efficiencies gained by regional aggregation of data centers and unification of services across national boundaries. Some vendors, such as Microsoft , have used data storage locale controls as a differentiating feature in their cloud services. After Germany and France either passed or nearly passed data localization laws,

616-498: Is gradually completed over a period of time, it should be completed within a reasonable period, which generally does not exceed 10 years. The exclusive protection measures of the Customs Union mainly include the following: Economic effects of customs unions can generally be grouped into static effects and dynamic effects . There are trade creation effects and trade diversion effects. The trade creation effect refers to

660-404: Is greater than the transfer effect, the combined effect of joining the Customs Union on the member countries is net profit, which means an increase in the economic welfare level of the member countries; otherwise, it is a net loss and a decline in the economic welfare level. The trade creation effect is usually regarded as a positive effect. This is because the domestic production cost of country A

704-481: Is higher than the production cost of country A 's imports from country B. The Customs Union made Country A give up the domestic production of some commodities and change it to Country B to produce these commodities. From a worldwide perspective, this kind of production conversion improves the efficiency of resource allocation . The customs union will not only bring static effects to member states, but also bring some dynamic effects to them. Sometimes, this dynamic effect

748-509: Is more important than its static effect, which has an important impact on the economic growth of member countries. (UK-CD) Additionally, the autonomous and dependent territories such as some of the EU member state special territories are sometimes treated as separate customs territories from their mainland states or have varying arrangements of formal or de facto customs union, common market and currency union (or combinations thereof) with

792-486: Is not subject to litigation at the WTO's Dispute Settlement Body, "there is no guarantee that WTO panels will abide by them and decline to exercise jurisdiction in a given case". Trade diversion and trade creation In general, trade diversion means that a free trade area would divert trade away from more efficient suppliers outside the area towards less efficient ones within the areas. Whereas, trade creation implies that

836-413: Is tied to the evolving trend of them becoming "deeper". The depth of a free trade area refers to the added types of structural policies that it covers. While older trade deals are deemed "shallower" as they cover fewer areas (such as tariffs and quotas), more recently concluded agreements address a number of other fields, from services to e-commerce and data localization . Since transactions among parties to

880-506: Is usually transferred only after meeting local privacy or data protection laws, such as giving the user notice of how the information will be used, and obtaining their consent. Data localization builds upon the concept of data sovereignty that regulates certain data types by the laws applicable to the data subjects or processors. While data sovereignty may require that records about a nation's citizens or residents follow its personal or financial data processing laws, data localization goes

924-485: The Rules of Origin Facilitator . It is expected to become a versatile tool which assists enterprises in understanding free trade agreements and qualifying for origin requirements under these agreements. Customs union A customs union is generally defined as a type of trade bloc which is composed of a free trade area with a common external tariff . Customs unions are established through trade pacts where

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968-464: The World Trade Organization (WTO) because the preferences that parties to a free trade area exclusively grant each other go beyond their accession commitments. Although Article XXIV of the GATT allows WTO members to establish free trade areas or to adopt interim agreements necessary for the establishment thereof, there are several conditions with respect to free trade areas, or interim agreements leading to

1012-561: The Zollverein , which was established in 1834, and gradually developed and expanded, was a customs union organization that appeared earlier and played a role in promoting German economic development and political unification at that time. Before the establishment of the unified German Empire in the 1870s, there were checkpoints between and within the German states, which hindered the development of industry and commerce. In 1818, Prussia took

1056-496: The All-German Customs Union. The contents of the alliance convention included: abolishing internal tariffs, unifying external tariffs, raising import tax rates, and allocating tariff income to all states in the alliance in proportion. In addition, there is a customs union between France and Monaco, which was established in 1865. A customs union was established by Switzerland and Liechtenstein in 1924, by Belgium,

1100-411: The Customs Union is that the member countries have not only eliminated trade barriers and implemented free trade , but also established a common external tariff. In other words, in addition to agreeing to eliminate each other's trade barriers, members of the Customs Union also adopt common external tariff and trade policies. GATT stipulates that if the customs union is not established immediately, but

1144-646: The EU. To counter the protectionist impulses of the EU and other countries, a number of regional free trade agreements prohibit data localization requirements and restrictions on cross-border flow. An example is the Trans-Pacific Partnership , which included language that prohibited data localization restrictions among participants, which was carried over to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership . Another example

1188-729: The European Union was considering restrictions on data localization laws being passed by member states in 2017. Data localization laws are often seen as protectionist . Consistent with the philosophy whereby trade barriers should be abolished within the EU but erected between the EU and other countries, the EU believes that data localization should be left to the EU to regulate at a pan-EU level, and member states' domestic data localization laws would violate European Union competition law . The EU's General Data Protection Regulation contains extensive regulation of data flow and storage, including restrictions on exporting personal data outside of

1232-563: The European Union's free trade negotiations and agreements. At the international level, there are two important free access databases developed by international organizations for policy-makers and businesses: WTO's Regional Trade Agreements Information System As WTO members are obliged to notify to the Secretariat their free trade agreements, this database is constructed based on the most official source of information on free trade agreements (referred to as regional trade agreements in

1276-805: The Netherlands, and Luxembourg in 1948, by the countries of the European Economic Community in 1958, and by the Economic Community of Central African States in 1964. At that time, the European Free Trade Association was different from the European Economic Community Customs Union . Free trade within the former was limited to industrial products, and no uniform tariffs were imposed on countries outside

1320-475: The Union. It was brought into action by the initiative of Prussia and joined by most of the German states. Pre- modern conditions ( 30+ currencies, trade barriers etc.) were viewed as an obstacle as obstacles to o economic exchange and growth by the new commercial classes, who argued for the creation of a unified economic territory allowing the unhindered movement of goods, people and capital. The main feature of

1364-489: The WTO language). The database allows users to seek information on trade agreements notified to the WTO by country or by topic (goods, services or goods and services). This database provides users with an updated list of all agreements in force, however, those not notified to the WTO may be missing. It also displays reports, tables and graphs containing statistics on these agreements, and particularly preferential tariff analysis. ITC's Market Access Map The Market Access Map

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1408-406: The benefits generated by products from domestic production with higher production costs to the production of customs union countries with lower costs. The trade diversion effect refers to the loss incurred when a product is imported from a non-member country with lower production costs to a member country with a higher cost. This is the price of joining the customs union. When the trade creation effect

1452-434: The extent to which free trade areas can be considered public goods. They firstly address one key element of free trade areas, which is the system of embedded tribunals which act as arbitrators in international trade disputes. This system as a force of clarification for existing statutes and international economic policies is affirmed within the trade treaties. The second way in which free trade areas are considered public goods

1496-399: The formation of free trade areas. Firstly, duties and other regulations maintained in each of the signatory parties to a free trade area, which are applicable at the time such free trade area is formed, to the trade with non-parties to such free trade area shall not be higher or more restrictive than the corresponding duties and other regulations existing in the same signatory parties prior to

1540-431: The formation of the free trade area. In other words, the establishment of a free trade area to grant preferential treatment among its member is legitimate under WTO law, but the parties to a free trade area are not permitted to treat non-parties less favorably than before the area was established. A second requirement stipulated by Article XXIV is that tariffs and other barriers to trade must be eliminated to substantially all

1584-403: The former will be entitled to preferential tariffs scheduled by the free trade area, the latter must pay MFN import duties. It is noted that in qualifying for origin criteria, there is a differential treatment between inputs originating within and outside a free trade area. Normally inputs originating in one FTA party will be considered as originating in the other party if they are incorporated in

1628-560: The lead in abolishing the customs duties in the mainland; it was followed by the establishment of the North German Customs Union in 1826. Two years later, two customs unions were established in the states of South Germany. In 1834, 18 states joined to form the German Customs Union with Prussia as the main leader. Thereafter, this alliance was further expanded to all German-speaking regions and became

1672-437: The mainland and in regards to third countries through the trade pacts signed by the mainland state. The European Union is a customs union and therefore sets a common external tariff. Data localization Data localization or data residency law requires data about a nation's citizens or residents to be collected, processed, and/or stored inside the country, often before being transferred internationally. Such data

1716-403: The manufacturing process in that other party. Sometimes, production costs arising in one party is also considered as that arising in another party. In preferential rules of origin , such differential treatment is normally provided for in the cumulation or accumulation provision. Such clause further explains the trade creation and trade diversion effects of a free trade area mentioned above, because

1760-518: The participant countries set up common external trade policy (in some cases they use different import quotas ). Common competition policy is also helpful to avoid competition deficiency . Purposes for establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries. It is the third stage of economic integration . Every economic union , customs and monetary union and economic and monetary union includes

1804-464: The push for data localization greatly increased after revelations by Edward Snowden regarding United States counter-terrorism surveillance programs in 2013. Since then, various governments in Europe and around the world have expressed the desire to be able to control the flow of residents' data through technology. Some governments are accused of and some openly admit to using data localization laws as

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1848-408: The trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories, and, (ii) subject to the provisions of paragraph 9, substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union; The German Customs Union,

1892-483: The trade within the free trade area. Free trade agreements forming free trade areas generally lie outside the realm of the multilateral trading system. However, WTO members must notify to the Secretariat when they conclude new free trade agreements and in principle the texts of free trade agreements are subject to review under the Committee on Regional Trade Agreements. Although a dispute arising within free trade areas

1936-836: Was developed by the International Trade Centre (ITC) with the objectives to facilitate businesses, governments and researchers in market access issues. The database, visible via the online tool Market Access Map, includes information on tariff and non-tariff barriers in all active trade agreements, not limited to those officially notified to the WTO. It also documents data on non-preferential trade agreements (for instance, Generalized System of Preferences schemes). Up until 2019, Market Access Map has provided downloadable links to texts agreements and their rules of origin. The new version of Market Access Map forthcoming this year will provide direct web links to relevant agreement pages and connect itself to other ITC's tools, particularly

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