Common Markets

Definition

A common market is an economic union where participating countries eliminate tariffs, quotas, and other trade barriers among themselves, while maintaining a common external tariff on goods imported from non-member countries. The goal is to promote the free movement of goods, services, capital, and labor within the market.

5 Must Know Facts For Your Next Test

1. Common markets aim to promote the free movement of goods, services, capital, and labor among member countries, creating a larger, more efficient market.
2. Establishing a common market often involves harmonizing policies, regulations, and standards across member countries to facilitate the flow of trade and investment.
3. Compared to a free trade area, a common market goes a step further by allowing the free movement of factors of production, such as labor and capital, in addition to goods and services.
4. The European Union is a prime example of a successful common market, with the free movement of goods, services, capital, and labor among its member states.
5. Common markets can help member countries achieve economies of scale, increase competition, and enhance their bargaining power in international trade negotiations.

Review Questions

• Explain how a common market differs from a free trade area in terms of the level of economic integration.
  • A common market goes beyond a free trade area by not only eliminating tariffs and other trade barriers among member countries, but also allowing for the free movement of factors of production, such as labor and capital, in addition to goods and services. This deeper level of economic integration helps to create a more unified and interdependent regional economy, with the goal of promoting greater efficiency and competitiveness.
• Describe the role of harmonizing policies, regulations, and standards in the establishment of a common market.
  • The harmonization of policies, regulations, and standards across member countries is a crucial aspect of establishing a common market. This process helps to facilitate the free flow of goods, services, capital, and labor by ensuring a level playing field and consistent rules and requirements. By aligning these economic factors, common markets can reduce barriers to trade and investment, enabling member countries to take full advantage of the larger, more integrated market.
• Analyze how the formation of a common market can impact the bargaining power of member countries in international trade negotiations.
  • The creation of a common market can enhance the bargaining power of member countries in international trade negotiations. By acting as a unified economic bloc, the common market can leverage its collective size and resources to negotiate more favorable trade agreements with non-member countries or trading blocs. This increased bargaining power can help member countries secure better terms of trade, access to larger markets, and more favorable rules and regulations governing international commerce. The pooling of economic resources and the ability to speak with a single voice can give common market members a stronger position in global trade negotiations.

Related terms

Free Trade Area: An agreement between countries to eliminate tariffs and other trade barriers among themselves, but each country maintains its own trade policies with non-member countries.

Customs Union: An economic union where participating countries eliminate tariffs and other trade barriers among themselves and also adopt a common external tariff on goods imported from non-member countries.

Economic Integration: The process by which countries remove trade and investment barriers and coordinate their economic policies to create a more unified and interdependent regional economy.