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OCCURRENCE OF TRADE CREATION When a Customs Union is formed, the member nations establish a Free Trade Zone amongst themselves and a common external Tariff on non-member nations. As a result, the member nations establish greater trading ties between themselves now that Protectionist barriers such as Tariffs , Quotas , and non-tariff barriers such as Subsidies have been eliminated. The result is an increase in trade among member nations in the good or service of each nation's Comparative Advantage . DOWNSIDE OF TRADE CREATION The creation of trade is important to the nation entering the customs union in that increased Specialization may hurt other Industries . Arguments for protectionism, such as the Infant Industry Argument , National Defense , Outsourcing , and issues with health and safety Regulations are brought to mind. However, customs unions are typically formed with friendly nations, eliminating the national defense argument, and in the long run serves to create more jobs and output due to specialization. SEE ALSO EXTERNAL LINKS
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