What is potentially an important argument against regional trade agreements?

Question

Quizplus · Accepted Answer

The potential argument against regional trade agreements is the fact that the benefits of trade creation may be outweighed by the costs of trade diversion. Trade creation occurs when a regional trade agreement leads to an increase in trade between member countries. However, trade diversion occurs when the regional trade agreement leads to a shift in trade away from more efficient producers who are not members of the agreement, towards less efficient producers who are members of the agreement. As a result, the net effect on global efficiency can be negative.

What Is Potentially an Important Argument Against Regional Trade Agreements