The trend nowadays is for countries to join customs unions such as NAFTA, ASEAN and the EU. In these unions free trade is enabled between member states and the only protectionist scheme they are allowed to keep is a common external tariff against non-member states. The way these unions emerged despite WTO regulations against preferential trade agreements is because there is an exception clause that allows for them if they are formed very quickly.
In the above diagram we see that as a country, lets say Turkey considers joining the European Union its market will face a new, additional, supply curve shown here by SEU. When this supply curve is introduced this will mean that the Turkish market for goods will have opened for goods from the EU thus eliminating some of the inefficient domestic production. This will be because Qs1-Qd1 will no be imported more cheaply from EU countries as they will have comparative advantage in the production of such goods.
Another reason why the concept of trade creation is important to countries that are thinking of joining a customs union is because now they wont be able to impose tariffs, quotas or any kind of protectionist scheme against countries within the union because trade needs to be carried out freely.
The concept of trade creation is illustrated in the above diagram. When a country enters a customs union it will have to switch from importing beef for example from New Zealand which are comparatively cheaper to importing beef from France which even though is more expensive than beef from New Zealand its still cheaper than domestically produced beef. From the above diagram we see that imports are going to be Qs2-Qd2 after the country enters the customs union. In the above figure area 1 represents the producers gain of surplus at the expense of the consumer because prices have risen and thus producers get a higher price than they are willing to sell for. Area 2 represents loss of economic efficiency because now that imported beef is more expensive some inefficient producers will be able to enter the market as there is some room for them to make profits. Area 3 represents revenues of the exporting country, in the above case France and area 4 represents real consumer surplus loss. Thus trade diversion is re presented by areas Qs2-Qd2 which is trade diverted from New Zealand to France.
The reason why nations would want to join a customs union therefore is because trade diversion offers them an alternative way of protecting their economies other than a tariff or any other protectionist scheme.