Key Difference: Common External Tariff in Customs Unions

Steps:

• Recall free trade area (FTA) definition: eliminates tariffs among members but allows independent external tariffs.
• Recall customs union definition: FTA plus a unified external tariff on non-members.
• Compare to choices: identify feature unique to customs union.
• Select option highlighting the external tariff distinction.

Why A is correct:

• By definition, a customs union builds on FTA by adopting a common external tariff, preventing trade deflection, while FTA members retain separate external tariffs.

Why the others are wrong:

• B: Fixed exchange rates characterize monetary unions, not customs unions or FTAs.
• C: Both FTAs and customs unions eliminate internal tariffs among members.
• D: Labor and capital mobility define deeper integrations like economic unions, not FTAs or customs unions.

Final answer: A