Trade diversion is said to exist when the formation of a regional trading group leads to the reduction of trade with nonmember countries in favor of member countries.

Question

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Trade diversion occurs when a regional trade agreement causes a country to shift its imports from a more efficient global supplier to a less efficient supplier within the group, due to the preferential treatment (like reduced tariffs) given to member countries.

Trade Diversion Is Said to Exist When the Formation of a Regional