Definition of Customs Union
A Customs union is a group of countries who agree to have free trade amongst themselves and agree a common external tariff to countries outside the zone.
For example, the EEC was a customs union. When the UK joined in 1974, the UK had free trade amongst other EEC members but had to impose tariffs on former Commonwealth countries outside the EEC.
A Free trade area like NAFTA has free trade amongst its members but countries can set their own tariffs to non members