The Potentials of Trade Diversion and Trade Creation in Bilateral PTA's of Iran (The Case of Syria, Turkey and Indonesia)

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 indicates that an agreement between Iran and Indonesia is more relevant than agreements with Turkey and Syria, who are respectively next in potential partners ranking.