The stated basic goal of regional trade organizations (agreements) is reducing tariff barriers and improving welfare at the regional level. But there are serious questions regarding the effect of these agrreements on trade in member versus non-member countries If the agreement yields positive trade effect in member countries, the phenomenon is called “trade creation". If this positive effect comes at the expense of negative effect on non-member countries, the phenomenon is called “trade diversion”. Trade creation is welfare improving, while trade diversion is welfare reducing. This paper is an attempt to measure the extent of trade diversion and trade creation in three Asian organizations, namely, the Economic Cooperation Organization (ECO), Persian Gulf Cooperation Council (GCC) and ASEAN. The model used is an extended version of the relatively well known gravity model and a total of 26 member countries were considered for data completion purposes over the time span of 2002-2006. The findings reveal an incidence of trade diversion in all three cases, implying that trade agreements are welfare reducing. JEL Classification: F51, L42.

The expansion of regional trade arrangements has been coincided with the growing trend in globalization. The importance of these regional trade arrangements have grown to that extent that now many countries in developing region have considered it as an alternative option to integrating into world economy and thus boosting their foreign trade and ensuring the mutual gain for the member countries. The very objectives of these regional trade arrangements are to reduce tariff barriers and to be the cause of increase in social welfare.But looking at the negotiations that are underway, a question that arise is that whether the formation of such trade unions, in particular in developing regions has been in line with the objective of boosting trade within member countries? and also whether growth of intra trade has brought about growth in trade with non member countries or not? If regional trade agreements bring about increase in intra trade it is the case for trade creation but if it comes at the cost of reducing trade with non-member countries it is the case for trade diversion.Trade creation works towards the welfare improvement but trade diversion causes the loss of welfare. This paper has attempted to measure the trade creation and trade diversion in regional grouping of countries in Asia. To do so, three known Asian regional organizations namely, the Economic Cooperation Organization (ECO), Gulf Cooperation Council (GCC) and association of south East Asian nations (ASEAN) have been selected for this purpose. Towards this ends the paper has utilized an extended version of a relatively well known gravity model to measure trade creation and trade diversion in these country groupings. Data used in this study covers the period of 2002-2006. The findings of this study indicate that over the period under investigation all the three regions have revealed trade diversion.

Bilateral preferential trade agreements (PTA's) are important tools for trade promotion. Despite the role of multilateral trading system (as materialized in WTO) bilateral trade agreements continue to be an international trade policy tool. Before a bilateral trade agreement is signed choosing the partners and negotiating the agreement are two essential steps. Trade promotion depends on how these previous stages including the analytical study on selecting among the potential partners is accomplished.So far Iran has had little practical experience in application of policy tools in its trade policy and its effects on trade, the methodology applied in this study serves as a preliminary theoretical tool to compare three potential parties. The applied method selects and ranks them according to their potentials in terms of trade creation and trade diversion.Michaely method is applied to compare Indonesia, Turkey and Syria in terms of potentials of trade diversion and trade creation as parties to PTA with Iran. The results of the study indicate that an agreement between Iran and Indonesia is more relevant than agreements with Turkey and Syria, who are respectively next in potential partners ranking.

This article surveys the effects of the Agreement on the Trade Preferential System among Islamic Countries (TPS/OIC) on Iran's trade flows and tariff income. The analysis has been performed in the framework of a partial equilibrium model under the tariff reduction scenarios. The results indicate that while this agreement would have some effects on OIC member's trade creation and diversion and would enhance Iran's exports and imports, it would widen Iran's non-oil trade deficit with other members due to Iran's higher tariffs. It would also reduce Iran's revenue despite higher imports.

This article studies the effects of a possible preferential trade agreement (PTA) among D8 members (Iran, Turkey, Pakistan, Indonesia, Malaysia, Bangladesh, Egypt and Nigeria) on Iran's agricultural trade flows and tariff income. To do so, the effects of trade creation as well as trade diversion in agricultural sectors of these countries are estimated based on two tariff reduction scenarios using a partial equilibrium model. Then the effects on Iran's export and import as well as its tariff income in agricultural trade with other D8 members are calculated.The results show that such an agreement would increase Iran's agricultural trade and export and would reduce its tariff income.