Preferential Trade Agreements

12 Key excerpts on "Preferential Trade Agreements"

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  Trade Cooperation

  The Purpose, Design and Effects of Preferential Trade Agreements

  • Andreas Dür, Manfred Elsig(Authors)
  • 2015(Publication Date)
  • Cambridge University Press

    (Publisher)

  116 v´ ıctor uma˜ na, thomas bernauer and gabriele spilker B. Preferential Trade Agreements To begin with, we discuss the policy measures with regard to which we examine individuals’ preferences. PTAs are instruments of policy coop- eration and coordination that allow countries to grant reciprocal and preferential access to members’ markets without extending these pref- erences to third parties. This means that PTAs allow for discrimination against nonmember countries. Modern PTAs cover more sectors and regulate more economic policies than the WTO agreements do. These features are the highlights of what is called ‘new regionalism’ (Mans- field and Milner 1999). By addressing behind-the-border regulations, such as those concerning the environment, social and labour market issues, migration, investment, government procurement, technical barri- ers to trade (TBT) or anticompetitive practices, modern PTAs facilitate global production networks and affect a larger set of actors than do tra- ditional multilateral forms of trade liberalisation (Mansfield and Milner 2012). The inherent discrimination of PTAs, which contradicts the cor- nerstone of the multilateral trading system – the nondiscrimination principle – is tolerated by the World Trade Organization (WTO) agree- ments under Article XXIV of the General Agreement on Tariffs and Trade (GATT) of 1994, which governs trade in goods, and Article V of the Gen- eral Agreement on Trade in Services (GATS). These provisions state that customs unions and free trade areas are permitted if tariffs or trade reg- ulations instituted by these agreements are not higher or more restrictive than those applicable in the constituent territories prior to the formation of those agreements.

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  Regional Economic Integration in the Middle East and North Africa

  Beyond Trade Reform

  • Mustapha Rouis, Steven R. Tabor(Authors)
  • 2013(Publication Date)
  • World Bank

    (Publisher)

  79 C H A P T E R 6 Preferential Trade Agreements Over the past 15 years, there has been an unprecedented increase in the number, breadth, and depth of Preferential Trade Agreements (PTAs) in the world. The number of PTAs has doubled during this period, reaching 278 at the end of 2010. PTAs have been employed in all regions, including Middle East and North Africa (MENA). Bilateral PTAs are becoming the norm, often between countries in different regions. South-South PTAs represent about two-thirds of all PTAs and North-South PTAs about one-quarter (Chauffour and Kleimann, forthcoming). PTAs are pursued for diverse motives, beyond that of simply gaining market access. Modern PTAs tend to address regulatory and policy issues that go well beyond the removal of tariff and quantitative restrictions to trade in goods and services. 1 Deep PTAs extend to rules and disciplines on various regulatory border and behind-the-border policies, such as competition policy, investment policy, government procurement, and intellectual property. Often, PTAs include provisions relating to trade in services and encompass commitments that either exceed those accepted at the multilateral level or that are outside the current World Trade Organization (WTO) mandate. PTAs have the potential to highlight contentious issues, such as the role of the state, subsidies, and soft budget constraints, which provide special advantages to national firms, 80 Regional Economic Integration in the Middle East and North Africa particularly in the services sector. A major advantage of PTAs is that they tend to spur beyond-the-border regulatory reform, which itself contributes to improving competitiveness and productivity in the par- ticipating nations. PTAs present significant opportunities and challenges for reform- minded governments.

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  Convergence as Adaptivity

  Understanding Policymaking in an Era of Globalization

  • Zhiyuan Wang(Author)
  • 2023(Publication Date)
  • SUNY Press

    (Publisher)

  PTAs generate considerable economic gains. First, they promote trade between members. They can do so because PTAs grant preferential tariffs on goods from members. For example, the US-Korea Free Trade Agreement (2007) sets out to eliminate 95 percent of each party’s tariffs on goods within five years of its entering into force. This goal is hardly feasible under existing multilateral trade regimes such as the WTO, to which both the US and Korea are parties. The reduced tariffs enhance the competitiveness of one member’s goods in the other’s market. This helps to secure market access for the exporting state. By stabilizing the commitment to free trade, PTAs also suppress export volatility; in turn, this facilitates production and exports (Baccini & Dür, 2011; Behar & Cirera-i-Crivillé, 2013; Lambert & McKoy, 2009; Lee et al., 2008; Mansfield & Reinhardt, 2008). One widely cited study finds that free trade agreements approximately double bilateral trade between members 10 years after taking effect (Baier & Bergstrand, 2007). Moreover, PTAs boost FDI flows to their signatories. They do so by implementing various compliance mechanisms to generate a credible commitment to liberal economic policies (Büthe & Milner, 2008) and by increasing the size of the market through integration (Jaumotte, 2004). Such effects can be incredibly large. For example, it is estimated that PTAs among North African states can increase FDI stock by 62 percent in Algeria, 85 percent in Morocco, and 165 percent in Tunisia (Jaumotte, 2004, p. 15). Therefore, by encouraging trade and investment, PTAs can produce economic gains comparable to—if not greater than—those that lowered labor standards are intended to generate. As a result, the pressure that a state faces to reduce labor protections will be mitigated when it enters into a PTA.

  More importantly, PTAs’ ability to promote trade and investment can benefit workers significantly by expanding employment opportunities and boosting wages. For example, one report estimates that US free trade agreements “increased total employment by 159.3 thousand full-time equivalent employees (0.1 percent) and increased real wages by 0.3 percent in 2012” (United States International Trade Commission, 2016, p. 124). This effect is not limited to PTAs that involve developed nations. Developing-developing PTAs can generate remarkable economic gains for workers as well. For instance, according to UNCTAD’s estimation (Saygili et al., 2018), Africa will expect to see employment grow by an extraordinary 1.17 percent under a fully free trade arrangement. Clearly, workers could be better off under PTAs.

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  Preferential Trade Agreements

  A Law and Economics Analysis

  • Kyle W. Bagwell, Petros C. Mavroidis(Authors)
  • 2011(Publication Date)
  • Cambridge University Press

    (Publisher)

  This depends partly on the size of the PTA in question, or more specifically on the importance of the trade flow on which a preference is granted. Although small PTAs will rarely mat- ter because they generally will not affect the prices at which trade occurs, large agreements like the EU or the Free Trade Area of the Americas (FTAA) are large enough to affect world prices. Their existence has implications for everyone in the market – positive for buyers if prices fall and negative for sellers – whether or not they deal with the PTA itself. The significance of price changes is that they affect not just marginal trade, but the whole volume of existing trade. Looking at the large country case, Robert Mundell (1964) illustrates the terms of trade effects of a PTA in a three-country general-equilibrium model with goods being gross substitutes and price changes occurring to restore balance of payments equilibrium in response to an initial preferential tariff shock. He showed that for a single preferential tariff change by one member, the preferred exporting partner’s terms of trade improved, while those of the excluded country deteriorated. Because a PTA amounts essentially to the two partners’ swapping such concessions, the excluded country potentially loses at every turn. Expressing this in terms of firm behavior, when a member-country firm ben- efits from a preferential tariff concession it becomes more competitive in the PTA market, and excluded country firms may have to respond by reducing their prices in compensation. This is a simple terms of trade change for the exporter – it now gets less for every unit that it sells in that market – and we could measure the loss as x ∗ dp, where x is the volume of exports and dp is the induced change in price.

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  Bilateral and Regional Trade Agreements: Volume 1

  Commentary and Analysis

  • Simon Lester, Bryan Mercurio, Lorand Bartels(Authors)
  • 2016(Publication Date)
  • Cambridge University Press

    (Publisher)

  Such PTAs are now in vogue. Even as multilateral approaches to trade liberalisation – through negotiations organised by the GATT/WTO – have made substantial progress in reducing international barriers to trade, GATT/WTO-sanctioned PTAs have rapidly increased in number in recent years. Among the more prominent existing PTAs are the North American Free Trade Agreement (NAFTA), the European Economic Community (EEC), both formed under Article XXIV, and the MERCOSUR (the CU between the Argentine Republic, Brazil, Paraguay and Uruguay), formed under the Enabling Clause. All in all, hundreds of PTAs are currently in existence, with nearly every member country of the WTO belonging to at least one PTA. 1 * This chapter draws substantially on my earlier research, particularly my works of 2004 and 2005 (cited below). 1 For a listing of all bilateral and regional trade agreements notified to the WTO, see www.worldtradelaw.net/ databases/ftas.php. 11 That a country liberalising its trade preferentially against select partners is doing something distinct from multilateral liberalisation (where it eliminates tariffs against all imports regardless of country of origin) should be easy to see. What this implies for the liberalising country is a little more difficult to understand. Even a good half century after the economic implications of trade preferences were first articulated by Viner, 2 the differences between preferential and multilateral liberalisation (or free trade areas versus free trade) remain a nuance that most policy analysts (and occasionally even distinguished economists) appear to miss. It is with a discussion of these issues concerning the distinction between prefer- ential and non-discriminatory trade liberalisation that we begin the analytical section of this chapter, which is intended as a brief and accessible primer on the economics of PTAs.

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  New Frontiers in Free Trade

  Globalization's Future and Asia's Rising Role

  • Razeen Sally(Author)
  • 2008(Publication Date)
  • Cato Institute

    (Publisher)

  5. Preferential Trade Agreements

  We will work with can-do, not won’t-do, countries. —Robert Zoellick All hat and no cattle. —Texan saying

  Given the parlous state of the World Trade Organization, it is not surprising that governments all over the world have turned to bilateral and regional negotiations to conclude preferential (i.e., discriminatory) trade agreements. These, it is said, can move faster, wider, deeper than multilateral negotiations. Thus, venting his spleen after the WTO’s failed Cancu´n Ministerial Conference, Bob Zoellick, the U.S. special trade representative, promised to speed ahead with bilateral deals with willing ‘‘can-do’’ partners. Skeptics, however, say that Preferential Trade Agreements (PTAs) are not what they are cracked up to be. And cynics would echo the Texanism quoted above.

  Do PTAs facilitate regional economic integration and, by extension, global economic integration? How credible are negotiating positions, the choice of negotiating partners, and the agreements already in operation? How good or bad is the fit between PTAs and economic policy at home? And how do they relate to involvement in the WTO? Take a look first at general trends, and then at PTAs in Asia, the scene of the most feverish PTA activity in recent years.

  Building Blocs and Stumbling Blocs

  By July 2005, 330 PTAs had been notified to the General Agreement on Tariffs and Trade/WTO—206 of them since the establishment of the WTO in 1995 (Figure 5.1). More than 180 are in force, with many more expected to be operational soon. Of the PTAs in force, 84 percent are free trade agreements (FTAs), with customs unions and partial-scope agreements making up the rest.1 Bilateral (countryto-country) agreements account for over 75 percent of PTAs in force and almost 90 percent of those under negotiation. PTA activity has increased pace since 1999–2000, and even more so since the launch of the Doha round.2

  Many regions have long been involved in PTAs. For the European Union, this goes back to its beginnings in the European Coal and Steel Community and then the European Economic Community. In North America, it took off with the U.S.-Canada FTA in the late 1980s. Africa, Latin America, and south Asia got going in the 1960s, and eastern Europe and the ex–Soviet Union after the end of the cold war.

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  Power and the Purse

  Economic Statecraft, Interdependence and National Security

  • Jean-Marc F. Blanchard, Edward D. Mansfield, Norrin M. Ripsman, Jean-Marc F. Blanchard, Edward D. Mansfield, Norrin M. Ripsman(Authors)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  PTA s may deter members from engaging in hostilities by raising the ex ante economic costs of political conflict.

  Preferential trading arrangements hold open the prospect of generating various economic benefits. Central in this regard are the efficiency gains stemming from trade creation, which are obtained if an arrangement increases commerce among participants at the expense of inefficient producers located in third parties.15 Of course, many PTA s have not been trade creating. Even trade diverting arrangements, however, can yield economic benefits by facilitating the realization of scale economies on the part of industries located in participating states; increasing competition among firms within the bloc, leading to greater efficiency; and spurring the flow of investment both between members and from sources outside the arrangement to members.16 Entering a preferential arrangement also can enhance the welfare of states by improving their terms of trade, since the group of states composing the arrangement will almost always have more market power than any constituent member.17

  Certain PTA s have achieved at least some of these ends. By promoting commercial integration, investment, and economic growth, they are likely to increase economic interdependence among members, a situatuion that various observers have linked to a diminution of interstate hostilities.18 The European Community represents the best such example. The ECSC identified as its raison d'etre “substituting] for age-old rivalries the merging of their essential interests; to create, by establishing an economic community, the basis for a broader and deeper community among peoples long divided by bloody conflicts."19 The European peace since the Second World War is undoubtedly overdetermined; U.S. security guarantees and economic assistance, the cold war alliance structure, and the consolidation of democracy have all played roles in reducing conflict in the region. In addition, economic integration itself has proceeded in fits and starts. Nonetheless, many scholars agree that the economic links among members of the EC have helped to establish a Europe in which “perceptions of physical threat have disappeared."20

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  Votes, Vetoes, and the Political Economy of International Trade Agreements

  • Edward D. Mansfield, Helen V. Milner(Authors)
  • 2012(Publication Date)
  • Princeton University Press

    (Publisher)

  CHAPTER 2

  A Political Economy Theory of International Trade Agreements

  IN THIS CHAPTER , we present a theory of the domestic political conditions that lead countries to enter into formal trade agreements. More specifically, we aim to explain the establishment of PTAs, institutions in which member-states reciprocally lower their trade barriers on each other’s products and thereby grant each member preferential market access. As we discussed in chapter 1 , our focus is on why and when countries have chosen to enter such agreements, understanding that there is substantial variability in the spread of PTAs over time and the countries that join them. Why have some countries joined many PTAs, while others have joined very few, and what explains the timing of PTA formation? In this chapter, we first present a rationalist theory of domestic politics to explain the pattern of PTAs. We then develop seven auxiliary hypotheses that follow from the logic of our model to further explore the model’s implications.

  Trade agreements are products of international negotiations. In order to take effect, however, legislatures and other veto groups in the contracting states must approve an agreement, or at least not block its passage and implementation (Putnam 1988; Milner 1997a). For an agreement to occur, governments and certain domestic groups have to find the accord preferable to the lack of one. To be rational instruments, agreements must provide net benefits to some domestic groups in all of the participating countries. Equally, the governments involved must decide that the benefits from concluding the agreement will exceed the associated costs. It is on these costs and benefits that we focus in analyzing the conditions under which rational political leaders will enter a PTA.

  The costs and benefits of joining a trade agreement could be economic, political, or both. As we noted in chapter 1 , economists have spent much energy debating the welfare consequences of PTAs. Whether they promote the economic welfare of states—let alone of the world economy—is still much debated. Existing studies have reached mixed conclusions about whether PTA members realize net economic gains. Many such studies also find that PTAs impose costs on third parties. Thus, it seems unlikely that governments are motivated to sign these agreements for purely economic reasons. Instead, we argue that governments sign PTAs for domestic political reasons.1

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  Handbook of International Trade Agreements

  Country, regional and global approaches

  • Robert E. Looney(Author)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  35

  Japan’s approach to Preferential Trade Agreements

  Gregory P. Corning

  Economic multilateralism played a central role in Japan’s post-Second World War economic growth. After decades of pursuing trade liberalization on an exclusively multilateral basis through the General Agreement on Tariffs and Trade (GATT), however, Japan began to explore the option of Preferential Trade Agreements (PTAs) in the late 1990s. A number of changes in the global, regional and national economy help to explain this shift. At the global level, slow progress at the World Trade Organization (WTO) pushed developed economies to find alternative ways of expanding market access for their exporters. At the regional level, Japan’s rejection of binding liberalization in the Early Voluntary Sectoral Liberalization Talks in 1998 made Asia-Pacific Economic Cooperation (APEC) less viable as a vehicle for regional liberalization. And following the Asian financial crisis in 1997–98, Japan also became more willing to explore regional projects that excluded the USA and more anxious about the growing regional profile of the People’s Republic of China. Finally, at the national level, reformist policymakers saw PTAs as a way to help to extricate Japan from the years of economic stagnation that followed the collapse of the bubble economy of the late 1980s.1

  This chapter examines the evolution of Japan’s PTA policy. It begins by exploring the external pressures and internal constraints that shape policy. The chapter then traces the development of policy through bilateral, regional and finally mega-regional agreements. For almost two decades, Japan has pursued a cautious and reactive policy seeking agreements that eliminate trade diversion, offer minimal agricultural concessions, maintain access to resources, and respond to the rise of China. However, the Trump Administration’s withdrawal from the Trans-Pacific Partnership (TPP) has unexpectedly thrust Japan into a leadership role in Asia-Pacific trade liberalization.

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  Dimensions of Trade Policy

  • (Author)
  • 0(Publication Date)
  • WSPC

    (Publisher)

  Part II Preferential Trading Agreements Passage contains an image

  Chapter 5

  Endogenous Protection and Trade Diversion

  Martin Richardson

  Abstract: Traditional positive analysis of preferential trading areas has focused on the trade-offs between (beneficial) trade creation and (potentially harmful) trade diversion. We consider the latter phenomenon in the formation of a free-trade area (FTA) between countries where tariffs against non-members are set endogenously. We show that such tariffs will fall consequent to the formation of FTAs and trade diversion is likely to become trade creation. This is illustrated in a model in which tariffs are levied to maximize a political support function. We conclude with some comments on the generality of this result and directions for future research.

  1.Introduction

  Preferential trading arrangements (PTAs henceforth) can take the form of free-trade areas (FTAs), customs unions (CUs) or more integrated arrangements such as the post-1992 European Community. In the United States, in particular, the formation of FTAs with Israel in 1985 (basically implemented in 1989, scheduled to be fully implemented by 1995) and with Canada (to be completed by 1999) have prompted interest in further FTAs.1

  The focal point of traditional analyses of PTAs is the distinction between trade creation and trade diversion. Trade creation arises when the arrangement induces a country to increase imports of a good from a more efficient supplier, trade diversion when imports increase from a less efficient source. In the latter case it is possible that net surplus gains to domestic consumers (net of losses to domestic producers) are more than offset by decreased tariff revenue and that the arrangement makes the country worse off.2

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  Preferential Trade Agreements and International Law

  • Graeme Baber(Author)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  3 The Scope for Preferential Trade Agreements within the World Trade Organization’s Framework

  The WTO’s notification system for PTAs is based on two complementary decisions of the Organization’s General Council – the Decision of 14 December 2006 on the Transparency Mechanism for Regional Trade Agreements and the General Council Decision of 14 December 2010 on the Transparency Mechanism for Preferential Trade Arrangements1 . The 2006 Decision applies to “trade agreements of a mutually preferential nature”, which it refers to as ‘Regional Trade Agreements’ or ‘RTAs’2 . The 2010 Decision concerns non-reciprocal trade arrangements, which it labels ‘Preferential Trade Arrangements’ or ‘PTAs’3 . Neither of these terms satisfactorily describes the preferential trade arrangements to which it refers4 . The terms proposed there of ‘Reciprocal Preferential Trade Arrangements’ (abbreviated to ‘RPTAs’) for those agreements to which the 2006 Decision applies and ‘Non-Reciprocal Preferential Trade Arrangements’ (shortened to ‘NRPTAs’) for those understandings to which the 2010 Decision pertains are to be used in the text which follows5 .

  Whilst the Decision of 14 December 2006 on the Transparency Mechanism for Regional Trade Agreements mentions Article XXIV of the GATT, the Understanding on the Interpretation of Article XXIV of the GATT, Article V of the GATS and the Enabling Clause6 , it provides no further specification on precisely what trade agreements it applies to – other than the fact that they are “trade agreements of a mutually preferential nature”7 . The demarcation between that Decision and the General Council Decision of 14 December 2010 on the Transparency Mechanism for Preferential Trade Arrangements is determined by Paragraph 1 of the latter, which applies the 2010 Decision to: (i) PTAs that fall within Paragraphs 2(a), 2(b) and 2(d) of the Enabling Clause8 , (ii) PTAs which extend preferential treatment to products from LDCs9 , and (iii) other PTAs that the Agreement Establishing the World Trade Organization (including its Annexes) authorizes which provide such treatment to products on a non-reciprocal basis10 . Thus, the 2006 Decision applies to PTAs that are notified to the WTO under Paragraph 2(c) of the Enabling Clause11

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  International Trade in East Asia

  • Takatoshi Ito, Andrew K. Rose, Takatoshi Ito, Andrew K. Rose(Authors)
  • 2007(Publication Date)
  • University of Chicago Press

    (Publisher)

  But in some cases, negative intrabloc trade e ff ects in the full sample become pos-itive in the smaller sample. And perhaps not surprisingly, while the com-parative advantage motivation for trade showed as significant in the full sample (with a positive and significant coe ffi cient on the di ff erence in per capita GDP), this is not the case in the restricted sample. These di ff erences also show that what constitutes “normal” trade is conditioned by how many countries and years are in the sample—those studies with restricted time and country coverage, particularly where it is restricted to high-income developed countries, are likely to have results biased accordingly. The nonmerchandise provisions show a positive (complementary) rela-tionship with trade when PTA indexes are defined dynamically. Thus fa-vorable investment and services trade provisions in PTAs can enhance merchandise trade between member countries once the agreement is in op-eration. In summary, the main result is that PTAs are not as relatively benign as previous studies have indicated. After controlling for country- and time-specific e ff ects and the degree of liberalization of merchandise trade provi-sions in an unrestricted sample and testing explicitly for whether the trade e ff ects are significantly di ff erent after PTA formation than before, most PTAs were estimated to have negative trade creation. Other recent empiri-cal assessments have shown a more optimistic outlook for trade in prefer-ential agreements by ignoring these analytical issues. One potential puzzle is that the intrabloc e ff ect is found to be negative for apparently more comprehensive and liberal PTAs—EU, CER, NAFTA, MERCOSUR and some of the recent bilateral agreements. One possible reason is that total elimination of tari ff s among members, as required by the General Agreement on Tari ff s and Trade (GATT) Article XXIV, may not be optimal for members.

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