Trade deflection
Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT
Meaning
Trade deflection happens inside an FTA whose members keep different tariffs on outside countries. A trader brings goods from a third country into the member with the lowest external tariff. The goods are then sent on duty-free to a partner that has higher tariffs. The high-tariff partner's protection is dodged. Rules of origin, which decide where a product really comes from, exist to stop this.
Example
Some Chinese goods have been routed through ASEAN partners to claim India–ASEAN FTA benefits. India's CAROTAR 2020 rules, in force from 21 September 2020, put the burden of proving origin on the importer to curb this.
Don't confuse with
- Trade diversion: imports genuinely shift from an efficient non-member to a less efficient FTA partner because of the tariff preference. Trade deflection is about dodging tariffs by rerouting goods.
Related concepts
- Stages of economic integration
- Preferential trade agreement
- Free trade agreement
- Customs union
- Common market
- Economic union
- Monetary union
- Trading bloc
- Regional economic groupings
- Regionalism