Preferential trade area (PTA)
Example: Trans-Pacific Partnership (TPP)
Countries that sign this type of trade pact enjoy lower tariffs for certain products than the countries that don't. Some types of PTAs can lead to trade creation, which occurs when high-cost domestic production is replaced by low-cost imports from other members; this is beneficial for the living standards of all countries involved. Other types of PTAs can lead to trade diversion as trade moves from a more efficient supplier outside of the PTA towards a less efficient one within the PTA. Ideally, a PTA would result in more trade creation than diversion.