Below table shows the costs incurred in automotive production in Turkey, European Union and Japan and the taxes imposed by the Turkish government on imported automotives in US $.

Turkey European Union Japan

1200 800 70

- 250 250

a. Under these conditions, will Turkey produce automotives domestically, or import from European Union or Japan?

b. If Turkey and European Union form a customs union and set the common external tariff as $250 per car, will this customs union be trade creating or trade diverting? Explain your answer? (30 pts.)