What defines a customs union?

A customs union is defined by an agreement among member countries to eliminate tariffs on goods traded between them while also adopting a set of common external tariffs applied to goods imported from non-member countries. This arrangement allows for the free movement of goods amongst members, promoting trade and economic cooperation. By adopting a common external tariff, the member countries ensure that they collectively protect their markets against outside competition, which is a fundamental characteristic of customs unions.

In contrast, the other options do not accurately reflect the essence of a customs union. Increasing tariffs among member countries would contradict the primary goal of improving trade relations. Establishing a trade monopoly suggests a restriction of competition rather than a cooperative arrangement for trade. Regulating internal taxation is typically the focus of tax agreements or fiscal pacts, which do not inherently involve establishing a customs union.