When preferential trade agreements are formed, the result is often a reduction of trade with countries that are not members of the group. Such a result is known as:

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Trade diversion occurs when a preferential trade agreement (such as a free trade area or customs union) causes imports to shift from a more efficient supplier outside of the agreement to a less efficient supplier within the agreement. This shift happens because of the preferential treatment (like reduced tariffs) given to member countries, leading to a reduction in trade with non-member countries.

When Preferential Trade Agreements Are Formed, the Result Is Often