Trade Diversion

Trade Diversion

Summary of Trade Diversion

The shift in purchases from sources outside a free-trade area (within which tariffs have been eliminated) to a union member, even though the cost of purchasing outside the union (before duty) is less than procuring from within. The absence of duty among members of the free- trade area more than offsets the lower unit costs available from outside suppliers.

(Main Author: William J. Miller)

Trade Diversion and International Trade Economy

In relation to international trade economy, Christopher Mark (1993) provided the following definition of Trade Diversion: A switch in sourcing of imports that results from a country's joining a customs union or free trade area, in favor of bloc partners and at the expense of nonmember trading partners.

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