What is a customs union?

A customs union is defined as a type of trade agreement between a group of countries that not only allows for the free movement of goods among the member nations but also establishes common external tariffs towards non-member countries. This means that while member countries can trade freely with one another without facing tariffs, they collectively apply the same tariffs to imports from countries that are not part of the union.

This arrangement promotes economic cooperation and can enhance trade efficiency among the member nations, as it simplifies trade rules and reduces costs associated with tariffs and customs duties when trading with each other. By having common external tariffs, the customs union also ensures a level playing field for the member countries when facing external competition.

The other options do not encapsulate the definition of a customs union accurately: while one option suggests a collection of nations trading freely without tariffs, this implies there are no external tariffs, which is not characteristic of a customs union. Similarly, the focus on simply imposing tariffs on each other misrepresents the cooperative trade framework of a customs union, which is rooted in mutual benefits rather than tariff imposition. Lastly, an economic cooperation agreement without trade barriers describes a more general trade agreement that might not specify the common tariffs aspect unique to customs unions.