What is a key difference between a free trade agreement and a customs union?

A customs union is characterized by the implementation of a common external tariff for all member countries. This means that while the member nations eliminate tariffs on trade among themselves, they also agree to a unified tariff structure for goods entering the union from non-member countries. This coordination among member states helps to prevent trade diversion and ensures that external trading partners face a consistent tariff rate, promoting a more cohesive trade policy among the members.

In contrast, a free trade agreement primarily focuses on eliminating tariffs between member countries but does not necessarily require common tariffs on imports from non-member countries. Each country within a free trade agreement can establish its own tariffs for goods coming in from outside the agreement. This distinction is crucial as it highlights the level of integration between member nations in a customs union compared to a free trade agreement.