Occurrence of Trade Diversion
Once the customs union is formed, the member nations establish the free trade zone amonst themselves and the most common external tariff on non-member nations. Antecedently a united states will will have the working trade relation sustaining an additional united states outside the customs union where for each one united states produced to their comparative advantages, a most common external duty might today produce it non when effective to trade thereupon non-member united states than using the united states inside the member united states's free trade zone. Therein respect, trade is diverted from either a united states outside a union to a united states in a union, lowering the aggregate output of the dependable or even service existence traded.

Downside of Trade Diversion
Entertained trade might pain the non-member united states economically & politically & produce a strained relationship between them nations. the reduced output of the serious or even service traded from either of these united states using the high comparative benefit to a united states of moo comparative benefit works against creating additional efficiency & so extra overall surplus. Yet, a single may argue that do you need a yours free! trade zone & trade creation might at last outweigh a introduction of trade diversion.

See Also
Trade creation