Economic Trade Agreements

In addition, as part of the trade diversion, the importing country loses the customs revenue it had collected for imports that now come from its bloc partner duty-free. The consumer wins in the importing partner because the imported thing no longer has to bear the cost of customs duties; However, the consumer`s gain is necessarily smaller or equal to the shortfall in tariffs, so the nation as a whole is less prosperous. As a result, trade diversion harms both the importing country and the rest of the world. These losses are greater than the profits for the bloc member earning exports due to trade diversion. A free trade agreement is a pact between two or more nations to reduce import and export barriers between them.

Comments are closed.