Common market

A common market is a type of economic integration where member countries eliminate tariffs and trade barriers among themselves, establish a common external trade policy, and allow for the free movement of goods, services, capital, and labor across national borders.
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Updated on Jun 5, 2024
Reading time 4 minutes

3 key takeaways

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  • A common market facilitates the free flow of goods, services, capital, and labor among member countries.
  • It requires the elimination of tariffs and trade barriers within the market and the adoption of a common external trade policy.
  • Common markets promote economic growth, efficiency, and competitiveness by creating a larger and more integrated market for businesses to operate in.

What is a Common Market?

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A common market is a form of economic integration that goes beyond a customs union by allowing for the free movement of factors of production, such as labor and capital, in addition to goods and services. Member countries of a common market typically eliminate tariffs, quotas, and other trade barriers among themselves, while also adopting a common external trade policy towards non-member countries. This deeper level of integration aims to create a single unified market where factors of production can move freely and businesses can operate without barriers across national borders.

Importance of a Common Market

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  • Trade Integration: Promotes trade liberalization and facilitates the flow of goods and services among member countries.
  • Economic Growth: Stimulates economic growth and development by creating a larger market and enhancing economies of scale.
  • Efficiency: Improves resource allocation and efficiency by allowing factors of production to move to where they are most productive.
  • Competitiveness: Enhances the competitiveness of businesses by providing access to a larger customer base and a more diverse range of inputs.
  • Regional Cooperation: Fosters cooperation and mutual benefit among member countries, leading to greater political stability and integration.

How a Common Market works

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A common market operates based on several key principles and mechanisms:

Free Movement of Goods

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Member countries eliminate tariffs, quotas, and other trade barriers on goods traded among themselves, allowing for the free movement of goods within the market.

Free Movement of Services

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The common market allows for the liberalization of trade in services, enabling service providers to operate across borders without discrimination or restrictions.

Free Movement of Capital

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Capital flows freely across national borders within the common market, allowing for investments, financial transactions, and capital mobility.

Free Movement of Labor

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Workers have the right to move freely within the common market to seek employment opportunities, leading to labor mobility and greater flexibility in the labor market.

Common External Trade Policy

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Member countries adopt a common external trade policy towards non-member countries, including common tariffs, trade agreements, and trade regulations.

Examples of a Common Market

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  • European Single Market: The European Union’s single market allows for the free movement of goods, services, capital, and labor among its member states.
  • Economic Community of West African States (ECOWAS): ECOWAS is a regional organization in West Africa that aims to promote economic integration and cooperation, including the establishment of a common market.
  • Southern Common Market (MERCOSUR): MERCOSUR is a common market in South America that includes Argentina, Brazil, Paraguay, and Uruguay, with associate members such as Chile and Bolivia.

Real world application

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  • European Union: The EU’s single market has facilitated trade and economic growth among its member states, leading to increased prosperity and integration.
  • ASEAN Economic Community: The ASEAN Economic Community aims to create a common market among the member states of the Association of Southeast Asian Nations, promoting regional economic integration and development.
  • East African Community: The East African Community is working towards establishing a common market among its member states to promote trade, investment, and economic cooperation in East Africa.

Sources & references

Arti

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