Deep Trade Research Articles

‘New-Age’ Preferential Trade Agreements and Global Value Chains: An Empirical Analysis

This article analyses the impact of the ‘depth’ of new-age preferential trade agreements (PTAs) signed by nations on value-added trade as well as trade in final and intermediate goods carried out between them. This objective of this article goes beyond the black-boxing of a PTA through a dummy and aims to focus on the ‘depth’ of a PTA as measured by its provisions and content. For this purpose, we construct an intensive panel data set. The data set spans across 6 years (3-year intervals across 2000–2015) and is constructed on a dyadic (country pair) level for 61 countries and 110 PTAs across the world, using the Trade in Valued Added (TiVA) Database from Organisation for Economic Co-operation and Development (OECD) and Content of Deep Trade Agreements database from World Bank. Further, we construct two indices for measuring the ‘depth’ of the PTAs based on their content. Our study uses augmented gravity equation with three-way fixed effects, namely country pair, exporter time and importer time, for estimating the results. Our results indicate that the ‘depth’ of a PTA significantly affects trade in final goods, intermediate goods and value-added trade, and the impact is highest for trade in value added. We also observe that PTA with greater number of provisions has a higher impact on trade in final goods, intermediate goods as well as trade in value added.

Non-Tariff Trade Policy in the Context of Deep Trade Integration: An Ex-Post Gravity Model Application to the EU-South Korea Agreement

Non-Tariff Trade Policy in the Context of Deep Trade Integration: An Ex-Post Gravity Model Application to the EU-South Korea Agreement-Trade Policy, Free Trade Agreement, EU, South Korea, Gravity Model

The effects of EU–Ukraine free trade agreement on the world’s sunflower complex

Abstract We analyse the effects of the Deep and Comprehensive Free Trade Area between the European Union (EU) and Ukraine on the world’s sunflower complex markets. We develop a spatial equilibrium model that incorporates the vertical and horizontal links between the primary commodity (seeds) and two final by-products (oil and meal). Our empirical analysis covers eight regions—the leading producers and consumers in the sunflower complex. This agreement causes EU’s sunflower oil price to decrease by USD 17.42 per metric ton, benefiting EU’s consumers by USD 81.4 million. However, EU’s total net welfare decreases by USD 10.3 million, while Ukraine’s increases by USD 32.7 million.

Deep trade agreements and harmonization of standards

AbstractThis study examines how free trade agreements (FTAs) and customs unions (CUs) affect multilateral trade agreements when countries endogenously determine the standards as well as tariffs. Raising standards reduces the negative consumption externalities of a traded good but increases firms' costs. We find that a deep FTA with the harmonization of standards may be a stumbling block for multilateral free trade with the international standard that maximizes world welfare, whereas a deep CU with standards is a building block. As extensions, we consider asymmetry in firms' production costs and in the awareness of negative externalities between countries as well as transboundary externalities.

Deep Trade Agreements and Domestic Institutions in the Americas

Preferential trade agreements (PTAs) have spread rapidly around the world since the 1990s. In the Americas, the proliferation of trade agreements with countries from within and beyond the region have resulted in a ‘spaghetti bowl’ of overlapping rules and regulations, some of which address behind-the-border issues such as investment, competition, labor and environmental standards. Has the increasing number of overlapping agreements helped attract foreign direct investment (FDI) into the region, thus facilitating integration in the global economy? Earlier research has linked trade agreements to increased foreign investment inflows. We argue, instead, that the effects of PTAs on FDI depend on the domestic institutional capacities of member countries. Domestic institutions condition the benefits and effectiveness of PTAs by influencing governments’ external credibility as well as their ability to implement the agreements they sign. Our empirical findings show that weak state capacity exacerbates the ‘spaghetti bowl’ effects of multiple, overlapping agreements. Moreover, it is not the quantity but the quality, and more specifically, the depth of trade agreements that matters for attracting FDI.

Globalization and Workforce Composition in Indian Formal Manufacturing: New Evidence on Product Market Competition Channel

A variety of mechanisms linking globalization and margins of adjustments in the labor markets have been empirically tested in recent years. How globalization could affect the workforce composition of industries and thereby the quality of jobs, a key labor market indicator is much less studied and the econometric evidence is sparse. This study contributes to filling the gap by studying India’s formal manufacturing sector that experienced deep trade and industrial reforms since the 1990s. Industry-level panel data are analyzed to establish the indirect link between product market structure (concentration) and workforce composition of firms (usage of contract workers). We explicitly measure changes in market concentration using a newly constructed trade-adjusted concentration ratio, profitability (price-cost mark-up), and workforce composition (usage of contract workers) to show how the effect of globalization is mediated indirectly through the product market structure. Our sample includes 46 three-digit formal manufacturing industries spanning from 1998 to 2014. The findings provide significant evidence that Indian manufacturing firms responded to globalization by hiring relatively more contract workers a key margin of labor market flexibility. This finding underlines the importance of understanding the indirect ways in which globalization could affect labor market conditions and workers' welfare in developing countries.

The Saga Continues: contestation of EU trade policy

ABSTRACT Trade policy constitutes a significant part of the European Union's (EU) foreign policy. The EU's emphasis on global trade liberalization in the 21st century is most evident through its ever increasing number of modern, deep, bilateral trade agreements. However, aspects of EU trade policy and bilateral agreements are hotly contested. We examine this by comparing the rhetoric employed by European civil society organizations from 2013 through 2020. While the focus of contestation and the rhetorical strategy remained fairly consistent, the effects of contestation (politicization, institutionalization of new processes) changed, largely due to the presence or absence of negotiations on a deep trade agreement with an economic and political equal perceived to have greater bargaining power. This study contributes to the literature on norm contestation and politicization by providing empirical evidence that mere contestation is insufficient for politicization, and by showing show that perceived bargaining strength influences trade politicization.

Deep Trade Agreements and Global Value Chains

A prominent argument as to why countries sign “deep” preferential trade agreements (PTAs) is to foster global value chains (GVCs) operations. By exploiting a new dataset on the content of PTAs, this paper quantifies the positive impact of deep PTAs on GVC participation, mostly driven by value-added trade in intermediate rather than in final goods and services. On average, each additional policy areas increases the domestic and the foreign value added of intermediates by 0.48 and 0.38%. Deep PTAs facilitate integration in industries with higher levels of value added. Their content also matters for GVC integration by income group.

The Proposed EU-UK Partnership Agreement as a Canada Style Agreement

This paper looks into the question of differentiation in EU foreign policy. Does the Trade and Cooperation Agreement (TCA) reached between the EU and the UK in December 2020 fall within a familiar differentiation track? In particular, is it a ‘Canada style’ agreement rather than, say, a ‘Norway style’ agreement? To what extent is it an attempt by the EU to nudge the UK into conformity with EU regulation? Does the agreement show that ‘geography matters’? We shall see that it is most of all a new generation deep trade agreement, like the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada. In a typology of international agreements, deep trade agreements have their distinct place. Their features allow parties to build a meaningful partnership while keeping a fair amount of control. This paper points to parallels between the EU-UK TCA and such an agreement. It gives the UK the opportunity to ‘take back control’, leaving it much more freedom than under a Norway style agreement. Its main feature is ‘freedom to legislate’, subject to the maintenance of a level playing field, and human rights protection. At no instance, there is a hard obligation for the UK to accept stricter environmental or sanitary standards on its territory than hitherto (the unique alignment of Northern Ireland having been laid down earlier in the 2019 Withdrawal Agreement). Importantly, the sophisticated dispute settlement provisions of the TCA have a unique feature, namely, that of facilitating divergence between the EU and the UK. The TCA allows the parties to inflict tariffs or to suspend (parts of) the agreement only under specific circumstances. Arguably, these circumstances are uniquely applicable to the TCA.

BÖLGESEL TİCARET ANLAŞMALARI(BTA)’NIN GELİŞİMİ VE DERİN TİCARET ANLAŞMALARI: TÜRKİYE’NİN SERBEST TİCARET ANLAŞMALARI (STA) AÇISINDAN BİR ANALİZ

Tüm Dünya’da Bölgesel Ticaret Anlaşmaları(BTA)’nın sayısı özellikle 1980’lerden sonra artış göstermiştir. Ancak son yıllarda bu artış ivmelenmiştir. Küresel ticaretin yapısının değişmesi, küresel ticaretteki aktörlerin farklılaşması, yeni sorunların ortaya çıkması ve de en önemlisi Dünya Ticaret Örgütü(DTÖ)’nün bu sorunların çözümünde yetersiz kalması ülkeleri ticaret anlaşmaları yapmaya sevk etmiştir. Son dönemde yapılan anlaşmaların içeriği de yeni konuların gündeme gelmesiyle değişmiştir. Daha fazla düzenlemenin hükme bağlandığı daha fazla alanı kapsayan bu anlaşmalar Derin Ticaret Anlaşmaları olarak anılmaktadır. Türkiye’de son dönemde daha fazla BTA yapmaktadır. Türkiye’nin yürürlükte olan bir Gümrük Birliği Anlaşması ve 21 tane Serbest Ticaret Anlaşması (STA) bulunmaktadır. Bu çalışmanın amacı da Türkiye’nin STA’larını analiz etmektir. Çalışmada ulaşılan bulgulara göre Türkiye’nin STA kapsamındaki ticareti yeterli düzeyde değildir. Ayrıca Türkiye’nin imzaladığı STA’ların derinliği de oldukça düşüktür. Türkiye’nin ticaretini arttırmak ve daha fazla yatırım çekmek için derin ticaret anlaşmaları imzalaması gerekmektedir.

Imperialisms Past and Present in EU Economic Relations with North Africa

The EU is actively pursuing Deep and Comprehensive Free Trade Agreements (DCFTAs) as part of its trade and aid relations with former colonies in North Africa. Utilizing the discourse of pro-poor business growth and win-win free trade, the EU insists that North African countries must acquiesce to DCFTA liberalization to achieve sustainable development. This article critiques the paternalism of EU actors amidst their focus on completing these controversial DCFTAs. Drawing upon Nkrumah's and Fanon's articulation of the concept of neocolonialism, it argues that the EU is cementing colonial-style patterns of production via iniquitous trade and aid arrangements. Moreover, the article illustrates that EU elites in their justification of the DCFTAs are replicating the colonial-era discourse surrounding Eurafrica and the alleged economic “complementarity” and inevitable “interdependence” of the European and African continents: an amnesiac Europe thus simultaneously draws upon European colonial imaginaries in the justification of neocolonial DCFTAs while downplaying, and forgetting, the regressive legacies of colonial trade relations. The article also demonstrates how certain North African campaigners are already drawing attention to the neocolonial contours of the DCFTAs in order to delegitimise these free trade vehicles vis-à-vis North African and European public opinion.

MEDIATION IN THE DISPUTE SETTLEMENT SYSTEM UNDER THE EU- UKRAINE ASSOCIATION AGREEMENT 2014

The article examines the system of dispute settlement under the Association Agreement between Ukraine and the EU of 2014, which may arise from the lack of a unified approach to interpreting the provisions of the Agreement or fair use, and due to the improper performance of obligations by one of the Parties. Each individual dispute resolution mechanism is described. In particular, a general dispute settlement mechanism extending to the provisions of the Agreement on Deep and Comprehensive Free Trade Area between Ukraine and the EU (DCFTA), and a dispute settlement mechanism within the DCFTA, implemented through consultation, arbitration or arbitration, are explored. It is stated that the general dispute settlement mechanism is based on a "traditional" diplomatic approach, in which the Association Council, consisting of members of the Government of Ukraine and members of the European Commission, is a key dispute resolution body. The DCFTA dispute settlement mechanism is more complex. Attention is drawn to the fact that the consultation mechanism, which by its content provides for negotiation, can act as a separate dispute settlement procedure or as a stage preceding the arbitration procedure or mediation, if the parties failed to reach a mutually agreed solution. The arbitration procedure involves the consideration of the dispute by a panel of three independent arbitrators whose decisions are binding on the parties. If the respondent Party does not comply with the decision and does not offer temporary compensation, the other Party has the right to apply temporary protection measures, which stipulate the suspension of its obligations. Another mechanism for dispute resolution is mediation, which aims to facilitate a mutually agreed solution through comprehensive and expedited procedures through a mediator. The features of mediation in the dispute settlement system under this Agreement are identified. Attention is drawn to the benefits of mediation over other dispute resolution tools provided by the UA. In particular, unlike arbitration, any dispute concerning the provisions of Title IV of the AA may be the subject of mediation. In addition, the mediator does not have the right to submit a final dispute resolution to the parties compared to the arbitrators. Its purpose is to facilitate the adoption of a mutually agreed decision taken by the Parties as a result of their independent consent. Such a feature makes the mediation mechanism a more attractive and flexible way of resolving a conflict between the Parties, which is not always ready to commit itself to a legally binding solution. In addition, jointly finding a mutually beneficial solution can help solve problems in interpreting and implementing the terms of the agreement in a more effective way.

EU Trade and Regulation: Economic and Political Dynamics

The EU’s new generation of deep and comprehensive free trade agreements not only promote EU trade but also have a bearing on the shape of the European model and in consequence on the sustainability of the integration project. They reach much further than conventional free trade agreements. Their benefits hinge on the abolition of non-tariff and regulatory barriers and enter into areas that are member state competences. Much depends on the agreements in question and similarity of preferences between trading partners. It is up to the EU, ultimately for the sake of the sustainability of its political integration project, to explicitly contemplate not only trade impacts but impacts on the Union’s economic model instead of letting rather than being pushed further down the road by unfolding trade dynamics. Keywords: Comprehensive free trade agreements; EU regulation and preferences; subsidiarity.

Salt Trading in Deli: Relationship between Karo and Coastal Area in 19th Century

In the East Coast region of Sumatra trade patterns between inland and coastal areas have occurred since the pre-colonial period. If we pull back, the Coastal region and the interior have been trading since the 14th century; this can be seen from the archaeological findings of ancient foreign ceramics in Kabanjahe. In the 19th century, orientlists have stepped on East Sumatra. In their visits and reports, orientalists say that there has been a trade relationship between the people in the community with the coastal community. This indicates that the trade relations of the world’s deep trade with thesis continue to be continued. The role of the inland region is to supply commodities to the coastline; we can interpret that in the coastal region there are no important commodities produced. This article describes the trade relations that occur in the past. This is useful for the flexi trade system of the former with the present. How is the relationship between trade in the 19th century between the interior and the coast.

Deep trade agreements and vertical FDI: The devil is in the details

AbstractAlthough pre‐1990s preferential trade agreements focused mostly on tariff liberalization, recent agreements increasingly contain deep provisions in diverse areas, such as intellectual property rights, investment and standards. At the same time, there has been a remarkable increase in the internationalization of production through foreign direct investment and outsourcing. This paper studies how deep trade agreements affect the international organization of production. Using new measures of the depth and content of preferential trade agreements and of vertical foreign direct investment, the analysis finds evidence that the depth of trade agreements is correlated with vertical foreign direct investment. Furthermore, this relationship is driven by the provisions that improve the contractibility of inputs provided by suppliers, such as standards, while provisions that increase the contractibility of headquarter services, such as intellectual property rights and investment protection, are generally negatively correlated with foreign investment. This finding is consistent with the so‐called “property rights” theory of the multinational firm according to which improving the contractibility of an input reduces the importance of giving incentives through ownership.

European Union Adapting to an Era of No Ruling Trade Paradigm

Since the end of the Second World War, the ruling paradigm pertaining to international trade policy has been ‘fostering liberalization of trade and economic integration.’ The paradigm evolved through a convergence of a variety of different forces and has been a constant for approximately seventy years. The European Union (EU) is very much a product of the acceptance of the paradigm. The institutional arrangements of the EU have elements that foster achievement of the paradigm’s goals. In the last few years, however, acceptance of the paradigm may be waning. The inability to make substantial progress in the World Trade Organization’s Doha Round is one indication. The EU itself is facing issues in ratifying certain aspects which the Commission negotiated at the bilateral level. Additionally, the deep trade agenda interferes in domestic politics. A question remains regarding how the EU has and will change its trade policy strategy in order to successfully achieve its international agenda for issues that have become more and more important for the EU societies.

Armenia Caught Between (In-)Compatible Legal Orders: Paths of Competitive and Cumulative Integration

In 2013, Armenia abandoned the plan to sign the Association Agreement and to establish a Deep and Comprehensive Free Trade Area (DCFTA) with the EU. Instead, it acceded to the Eurasian Economic Union (EAEU). Against this U-turn in Armenia’s integration agenda, this contribution critically investigates the (in)compatibility of participation in the European and the Eurasian legal orders. While the customs union-based regional integration processes preclude Armenia’s participation in both, the authors argue that the strict dichotomy of having to choose one or another transnational legal order and the subsequent legal and political divisions harm Armenia and hamper the achievement of objectives inherent to the EU’s Eastern Neighborhood. It will be argued that this dichotomy may be overcome by a rapprochement between the EU and the EAEU, potentially through contractual relations. Moreover the creative ways in which the EU already provides for differentiated integration could be adapted to enable Armenia reconcile legal approximation with the EU with its engagement within the Eurasian region.

Externalising Europe’s energy policy in EU Free Trade Agreements: A cognitive dissonance between promoting sustainable development and ensuring security of supply?

It is no secret that while the European Union (EU) has taken up commitments to combat climate change under the United Nations Framework Convention on Climate Change Paris Agreement and its own 2020 and 2030 climate and energy package strategy, the Union continues to be heavily dependent on the import of fossil fuels from abroad. One may even say that this leads to a cognitive dissonance, i.e. the discomfort which ensues if one holds two contradictory values, with respect to the externalisation of the Union’s energy and sustainable development policy. On the one hand, the EU aims to become a global frontrunner in the field of promoting renewable energy and sustainable development. This expresses itself through the inclusion of specific chapters on Trade and Sustainable Development in the EU’s Free Trade Agreements (FTAs) (standard since the 2011 EU-South Korea FTA). On the other, the EU realises that it is imperative to secure the Union’s security of energy supply, still largely guaranteed by fossil fuels. Therefore, the Union in parallel attempts to eliminate discriminatory practices in international fossil fuel trade in its bilateral agreements (e.g. in the EU-Ukraine Deep and Comprehensive Free Trade Agreement). This paper will explore the root causes of this cognitive dissonance and research what elements could contribute to ensuring more coherence in EU external energy policy. The objectives of sustainable development and security of supply are not necessarily contradictory per se. However, clearer delineations between the two objectives are necessary in EU external relations in general, and in the Union’s FTAs more specifically. This also applies to relations between Member States and the Union in this area, as well as to the interactions between the relevant EU institutions tasked with energy, sustainable development and the environment.

Deep Trade Agreements and Global Value Chains

Preferential Trade Agreements (PTAs) have become deeper over time, often encompassing a set of disciplines that go beyond traditional trade policy such as investment, competition, and intellectual property rights protection. In the policy and theory literature, a prominent argument why countries sign “deep” PTAs is to promote and facilitate the operation of Global Value Chains (GVCs). This paper exploits a new dataset on the content of PTAs and data on trade in value added and in parts and components to quantify the impact of deep trade agreements on bilateral cross-border production linkages. Results show that the positive impact of deep trade agreements on GVC integration is driven by value added trade in intermediate rather than in final goods and services. Adding a policy area to a PTA increases domestic value added of intermediates (forward GVC linkages) and foreign value added of intermediates (backward GVC linkages) by 0.48 and 0.38 percent, respectively. At the sectoral level, the positive impact of deep PTAs is higher for higher value-added services suggesting that deep agreements help countries to integrate in industries with higher levels of value added. On a larger sample of countries and years, results confirm that adding a provision to a PTA increases bilateral trade in parts and components by 0.3 percent. The content of PTAs also matters for GVC integration, but the impact varies by income group. Provisions outside the current WTO mandate (e.g. investment, competition policy) drive the effect of deep PTAs on value added trade and on North-South trade in parts and components. Provisions under the current WTO mandate (e.g. tariff reduction, customs facilitation) drive the effect of deep PTAs on South-South trade in parts and components.

The International Medium of Exchange

We propose a model of endogenous, persistent coordination on the international medium of exchange. An asset becomes the dominant international medium because it is widely held, and remains widely held because it is dominant. The country issuing the dominant asset is a net debtor, but earns an “exorbitant privilege” on its position. In a calibrated model, only steady states with one dominant asset are stable. The dominant country experiences a significant welfare gain, most of which is accrued during its rise to dominance. A mild trade war reduces privilege slightly, while a protracted or deep trade war eliminates it altogether.