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Yes, there are risks of trade diversion associated with economic integration.

Economic integration, exemplified by the establishment of a free trade area or a customs union, can indeed result in trade diversion. Trade diversion occurs when a country chooses to import goods from a member of its economic bloc instead of sourcing them from a more efficient producer located outside the bloc. This preference often arises from the favorable treatment, such as reduced tariffs, afforded to member countries.

For example, consider the United Kingdom (UK) as a member of a hypothetical economic bloc. The UK has the option to import wheat from either Canada or France. Canada, which is not a member of the bloc, can produce wheat more efficiently and at a lower cost than France. However, because France is a member of the bloc and benefits from preferential treatment, the UK may decide to import wheat from France instead. This scenario illustrates trade diversion, in which trade is redirected from a more efficient producer to a less efficient one due to the framework of economic integration.

Trade diversion can have several detrimental effects. Firstly, it can lead to a loss of economic efficiency. In the aforementioned example, the UK ends up paying more for wheat than it would have if it had imported from Canada. This situation could result in higher prices for consumers and a potential decline in the overall welfare of the country.

Secondly, trade diversion may deteriorate relationships with non-member countries. If a country consistently prioritizes imports from within its economic bloc, it risks straining its trade relations with external nations. This could provoke retaliatory actions, such as increased tariffs, from those countries.

Lastly, trade diversion could lead to a reduction in competition. If a country predominantly imports goods from within its economic bloc, it may create a market dominated by a few producers. This concentration can result in higher prices and lower-quality goods for consumers.

In conclusion, while economic integration offers numerous advantages—such as enhanced trade and economic cooperation among member countries—it is also accompanied by the risk of trade diversion. This risk can lead to a loss of economic efficiency, strained relationships with non-member countries, and diminished competition.