Customs unions extend free trade areas with unified external trade policy

Steps:

• Recall free trade area (FTA) definition: eliminates tariffs among members but allows independent external tariffs.
• Recall customs union definition: FTA plus common external tariff on non-members.
• Compare choices: identify features shared vs. unique to customs union.
• Select option unique to customs union, excluding shared or unrelated traits.

Why A is correct:

• By definition, a customs union requires a common external tariff to prevent trade deflection, unlike FTAs where members set their own external tariffs.

Why the others are wrong:

• B: Both FTAs and customs unions eliminate internal tariffs between members, so no common tariff applies internally.
• C: Fixed exchange rates characterize monetary unions, not trade agreements like FTAs or customs unions.
• D: Abolition of internal tariffs defines both FTAs and customs unions.

Final answer: A