Which of the following explains why "rules of origin" regulations are necessary within a Free Trade Area (FTA) but are not required within a Customs Union?
In an FTA, member nations maintain independent external tariffs, creating a risk of trade deflection where non-members import via the lowest-tariff country; a Customs Union's common external tariff eliminates this risk.
Members of an FTA must maintain independent exchange rate regimes to offset trade imbalances, whereas a Customs Union requires a single currency area.
An FTA allows for the free movement of factors of production, which requires origin tracking to prevent capital flight, whereas a Customs Union restricts factor mobility.
A Customs Union harmonises all product safety standards and domestic regulations, making origin tracking redundant, whereas an FTA does not harmonise these standards.
