Depending on trade agreements between your country and other countries, there are three situations that you might encounter when your business trades with another company located in a foreign country.

• Trade within a customs union
• Trade based on a free trade agreement
• Trade with an independent third country

A customs union is an association formed when two or more sovereign states agree to eliminate or reduce trade restrictions among themselves and to adopt a common trade policy toward outsiders. For members of a Customs Union, no rules are needed to determine which goods inside the union can move freely and no origin rules are needed, therefore, no internal frontiers are needed for customs or external trade purposes.

Customs unions are designed to lower costs of imported goods and to enlarge markets. Member countries can thus concentrate on products that are easiest to produce in terms of their own resources and import other essential products at minimal expense.

• Reduce or eliminate trade restrictions
• Standardize VAT (Value Added Tax)
• Establish a common European currency.

A free trade agreement (FTA) between countries seeks to reduce or eliminate customs duties and restrictions to the exchange of commodities between them. Unlike a customs union, an FTA is binding for trading purposes only – there are no common political institutions involved and the sovereignty of member states is left intact. There is no intent to integrate the economies or to turn them into a single economy.

• European Economic Area (EEA)
• European Free Trade Association (EFTA)
• North American Free Trade Agreement (NAFTA)
• Caribbean Community and Common Market (Caricom)
• Mercado Comun del Sur (MERCOSUR)

• Free transit of production goods, services and factors between member states
• Eliminating customs rights and lifting nontariff restrictions on the transit of goods
• Fixing a common external tariff
• Adopting a common trade policy with regard to nonmember states
• Coordinating positions in regional and international commercial and economic meetings
• Coordinating policies of member states relating to foreign trade, agriculture, industry, taxes, the monetary system, exchange and capital, services, customs, transport and communications to ensure free competition between member states
• Commitment by the member states to make adjustments to their laws to strengthen the integration process.

When you trade with an independent third country (one with which your country has no free trade agreement or is not a member country of a customs union), your company is subject to all customs tax regulations and must make duty payments for goods transferred to or from that country. Duty rate schedules are provided by the customs authorities in each country and are assessed for certain goods listed in the Harmonized Commodity Description and Coding System (HS).

Economic zones generally consist of countries that are grouped based on a free trade agreement or are members of a customs union. Not all economic zones have the same aims or the same level of integration between member countries. However, they are all designed to promote the free movement of goods between a zone's member countries with little or no duty payments for such trade. For example, NAFTA intends to remove respective customs restrictions over a long period of time. In contrast, the EU – as a customs union – has already removed customs restrictions and takes other political aspects into consideration in addition to trade.