Suppose the EU imports 1,000 kgs bananas from Argentina at 28p per kg. Due to a 25% tariff the price to the EU customer is 35p per kg. Farmers in southern EU can produce bananas at 40p per kg. Also suppose that the WTO proposal to eliminate tariffs on the poorest nations is approved and, as a result, Nigeria produces bananas at 40p per kg.
Does this change result in trade creation or trade diversion? Explain why?