Free Trade Agreement Research Articles

The European Union-Mercosur Free Trade Agreement as a tool for environmentally sustainable land use governance

After twenty years of arduous negotiations, in 2019 the European Union (EU) and the Common Market of the South (Mercosur) announced the conclusion of a landmark trade agreement. Celebratory fireworks, however, were soon replaced by less desirable signs of smoke: the burning of the Amazon and Cerrado biomes, which has placed the bi-regional partnership under close public scrutiny. Since then, a lively debate among scholars, policymakers, activists, and private sector stakeholders has unfolded in an effort to assess the economic, social, and environmental implications of the agreement. To contribute to this debate, we use the EU-Mercosur Trade Agreement (EMTA) as a case study to discuss the complexities of transitioning to a global green trade policy paradigm, questioning whether free trade agreements could effectively promote sustainable land use governance. Bearing in mind the current environmental footprint of EU imports of Brazilian commodities, we illustrate the challenges inherent to decoupling international agri-food trade and land conversion, examining the current estimates and projections regarding the EMTA's potential impact on land-use change in Brazil. We also investigate the sustainable development provisions in the EU-Mercosur agreement, reviewing its land conversion-related clauses. While the EMTA has limitations common to other free trade agreements, it could be a useful additional tool for improving sustainability governance in the existing trade between the two regions by establishing a structured and legally stable platform for cooperation and implementing joint initiatives. The EMTA could set a positive benchmark for future free trade agreements that Mercosur might negotiate with other countries that are larger importers of agricultural commodities.

Analyzing the impact of the EVFTA on the importation of transportation vehicles, parts, and components into Vietnam from the EU: A SMART model approach

This study examines the impact of the EU-Vietnam Free Trade Agreement (EVFTA) on Vietnam’s imports of transportation vehicles, parts, and components from the EU. Using the SMART model and data from UN COMTRADE and Vietnamese government agencies, the analysis shows modest increases in import values. Growth rates are 0.23% with the EVFTA alone and 0.21% when the Regional Comprehensive Economic Partnership (RCEP) is also considered. These findings reveal different effects among EU member states and product categories, especially in HS group 87 (vehicles) and HS group 89 (ships and boats), where trade creation is notable for Germany, Slovakia, and Italy. However, the study also finds significant trade diversion, with $361.91 million shifting from other regions to the EU. Despite these modest gains, the EVFTA positively impacts Vietnam’s industrial growth and green energy transition by enabling the import of advanced EU products. The research emphasizes the importance of considering how agreements like the RCEP influence the broader economic effects of the EVFTA, as some benefits shift to RCEP countries like Japan, South Korea, and China.

Assessing the impact of free trade agreement (FTA) signing on China’s outbound labor services

This study utilizes panel data encompassing 164 countries to analyze China’s foreign labor export from 2008 to 2017. Employing the multi-period double-difference method, the research investigates the impact of Free Trade Agreement (FTA) signings on China’s labor export. Empirical findings reveal the following insights:The signing of FTAs significantly enhances China’s foreign labor export, demonstrating a temporal effect. Importantly, this conclusion withstands rigorous testing through various robustness checks. FTAs have a positive impact on China’s labor export to developing countries but do not exhibit a similar effect on developed countries. The impact of FTAs on labor export is pronounced in contractual engineering scenarios, while no discernible effect is observed in China’s labor cooperation. Through a meticulous examination of specific WTO+ and WTO-X provisions, the study underscores that it is primarily the WTO+ provisions that drive China’s foreign labor export. Consequently, strategic recommendations are proposed. These include fostering additional FTAs between China and developing nations, prioritizing labor export within contracted projects, encouraging expansion of Chinese labor export enterprises into new markets, promoting multi-party cooperation to facilitate overseas labor export, diligent consideration of existing FTA provisions, and exploration of transitioning from WTO+ to WTO-X provisions.

Organizational Hierarchies and Export Destinations

Abstract This paper proposes a new link relating export destinations and the organization of the firm: the production of higher-quality varieties exported to rich destinations induces firms to restructure their production processes, becoming organizationally more complex. A theoretical model with these features is presented and then the mechanisms are explored using a panel of Chilean manufacturing plants. The identification strategy of the paper relies on falling tariffs on Chilean products across destinations caused by the signature of Free Trade Agreements with high-income countries (the European Union, the United States, and South Korea). Results show that Chilean plants that were induced by these tariff reductions to start exporting to high-income destinations increased the number of hierarchical layers and upgraded the quality of their products. This involved the addition of qualified supervisors that facilitated the provision of higher product quality. These effects took place at new high-income exporting firms.

Endogenous coalition formation and free trade agreements

Endogenous coalition formation and free trade agreements

The EU’s new anti-deforestation law has severe loopholes that could be exploited by the forthcoming EU-MERCOSUR trade agreement

Abstract The EU deforestation regulation promises global green leadership, however, loopholes may lead to an increase in the trade of deforestation-implicit agricultural products. Ratification of the EU-MERCOSUR free trade agreement could exploit this situation.

CPTPP State-Owned Enterprise Rules and Our Countermeasures

State-owned enterprises (soes) play an important role in the global economy. Some developed countries believe that because of the state nature of SOES, SOES enjoy more privileges and unfair competitive advantages than private enterprises, including government subsidies and regulatory incentives, so that their market competitiveness and overall strength are strong. In order to get rid of the “Official business” advantage of state-owned enterprises, promote the equal competition between state-owned enterprises and private enterprises, and reduce the concern of state-owned enterprises, the rules of our state-owned enterprises are gradually formed. For the first time in the international market, CPTPP specifically regulates the rules of state-owned enterprises. Compared with other free trade agreements, cPTPP's SOE rules are characterized by stronger competition neutrality rules, wider scope of application, more non-commercial aid rules and higher transparency. In the context of China's imminent accession to CPTPP, this paper analyzes the regulation of our state-owned enterprises that have signed the free trade agreement, and finds that the number of state-owned enterprises to be regulated in the free trade agreement is small and the level of regulation is low. Therefore, we must actively negotiate the new issues of state-owned enterprises and actively participate in the construction of international rules of state-owned enterprises. For the CPTPP high-level SOE rules negotiation, we should follow China's national conditions, study the introduction of ownership-neutral competition-neutral principle as the core, and further deepen the reform of state-owned enterprises, state-owned enterprises to standardize the way of subsidies.

Strategy for Increasing Exports of Indonesian Palm Oil

Abstract Palm oil and its derivatives contribute to 13% of Indonesia’s total exports. Indonesia has a significant opportunity to become a major player in the global palm oil trade but faces threats in expanding market access and even maintaining existing markets. This research aims to analyse the strengths, weaknesses, opportunities, and threats in the plantation sector, especially palm oil, in Indonesia, using competitiveness analysis and Export Product Dynamic to formulate strategies for enhancing the export of palm products and derivatives. From this analysis, it is concluded that Indonesia has strength in its geographic conditions, but needs to strengthen human resources, especially in the agricultural sector, and add value to export commodities beyond raw materials. With the growth of the international market and the increase in the number of free trade agreements held by Indonesia, the potential for developing market access for palm and its derivatives is likely to expand. However, Indonesia also faces non-tariff barriers and environmental unfriendliness stigma, resulting in rejection or obstacles for Indonesian products to enter export destination countries. Strategies to be explored further include expanding into emerging markets while maintaining traditional markets, optimizing research and development for upstream efficiency and downstream derivative product diversification, improving sustainable palm oil industry governance, and enhancing domestic policies to support the palm oil industry.

Preferential trade agreements as insurance

We investigate preferential trade agreement (PTA) formation when risk averse countries face demand uncertainty and, hence, have an insurance motive for pursuing trade integration. In this environment, when deciding which type of PTA − if any − they wish to form, countries seek to maximise their net welfare; that is, their expected utility less a risk premium. The desire for insurance influences, not just whether a particular PTA forms, but also the preferred depth of integration. We analyze the insurance implications of free trade agreements (FTAs), customs unions (CUs), and countries choosing to stand alone. We further distinguish between shallow CUs and deep CUs; in the former, members maximise the sum of their individual net welfares, while in the latter they maximise the net value of the sum of their individual expected welfares. We show that differences in country risk attitudes and the levels of risk they face, as well as the degree to which these risks are correlated with each other, each, and together, influence the formation and design of TAs. When countries’ demands are uncorrelated, they form a deep CU if their levels of risk aversion are sufficiently different. If, however, their risk attitudes are similar, countries opt for shallower trade integration − either a shallow CU or a FTA − if they face low levels of uncertainty, and choose to stand alone if one country faces a sufficiently high level of uncertainty. When countries’ demands are correlated, they tend to form a deep CU if their demands are strongly negatively correlated, a FTA if their demands are strongly positively correlated and a shallow CU when their demands are weakly correlated. Intuitively, differences in country risk attitudes (i.e., their degree of risk aversion) act as an additional source of comparative advantage. Deeper integration − particularly via a CU − permits less risk averse members to essentially export their relative partiality for risk to more risk averse partners, thereby effectively providing the latter with insurance.

Intra‐African trade and corruption: Evidence from sub‐Saharan African countries

AbstractCross‐border trade is critical to livelihoods and food security in sub‐Saharan Africa (SSA), but bribery remains one of the main barriers to economic growth in the region. Does corruption affect intra‐African trade? We address this issue by considering the bilateral trade among 48 sub‐Saharan African countries from 2000 to 2018, which are subject to a high level of corruption. Using a gravity model, the results show that corruption has a positive impact on exports and a negative impact on imports of global, primary, and manufactured goods. However, the difference in the level of corruption between country pairs is negatively and significantly associated with intra‐African trade in manufactured goods. Therefore, to promote the corruption‐free environment needed to facilitate the African Free Trade Agreement, it is essential for policymakers in sub‐Saharan African countries to combat corruption to boost intra‐African trade.

Trade Creation or Diversion?—Evidence from China’s Forest Wood Product Trade

In recent years, trade protectionism and unilateralism have prevailed, and countries around the world have imposed restrictions on log exports. It has also become more difficult for China to import wood resources and export deep-processed wood forest products. Based on panel data from 2000 to 2019, this study uses social network analysis to measure the level of the Chinese wood forest product trade network, takes the Chinese free trade agreements (FTAs) as the natural experiment, and uses the multi-stage double-difference method to investigate the impact of the signed FTAs on China’s wood forest product trade. The study finds that the trade network of Chinese wood forest products is becoming increasingly complex, and the central position of China and the Association of Southeast Asian Nations (ASEAN) in the network is increasing year by year. The signing of FTAs has had a significant positive impact on the trade of wood forest products in China and a significant trade creation effect. This finding remains true after conducting the placebo test and propensity score-matched regression control. At the same time, the import of wood forest products in China will have a significant trade transfer effect due to the signing of FTAs, and this will not affect exports. Although FTAs show significant trade creation and trade transfer effects in China’s wood forest product trade, they also increase, to a certain extent, the mismatch of forest resources worldwide.

Labour Provisions in UK Trade Policy: Mapping the Spatial Politics of the Trade-Labour Linkage

ABSTRACT Academic literature on the trade-labour linkage has tended to operate within a methodological nationalism that reifies the nation-state as the unit of analysis and treats labour rights as universally applicable. This paper instead starts from the premise that the linkage spotlights certain types of work and worker, resulting in geographically differentiated modes of labour governance. Focusing on the post-Brexit reconstitution of trade policy in the UK and its party political discourse, the paper details how labour provisions were written into free trade agreements, export finance arrangements, supply chain reporting requirements and unilateral preference schemes. Its argument is that these were constructed and contested through distinctions made between leading and laggard states; acceptable and unacceptable exploitation; and desirable and undesirable exploitation – each of which had a spatial politics in shaping where and how labour ought to be governed.

Bilateralism vs. multilateralism: Role of political economy for the prospect of multilateral free trade

AbstractIn this paper, we use a unified framework of competing exporters and competing importers models where political biases in both exporting and import‐competing sectors influence governments' decisions in trade agreement formation and external tariff setting. Using an endogenous trade agreement formation model, we show that the relative strength of political biases in import‐competing and exporting sectors are pivotal in determining the free‐riding incentives, exclusion incentives and whether the ability to form free trade areas acts as building or stumbling blocks towards multilateral free trade. When the political biases toward exporting and import‐competing sectors are sufficiently weak, the ability to form free trade agreements acts as strong building blocks toward free trade. However, when the political bias towards exporting sectors is at the intermediate range and political bias towards import‐competing sectors is sufficiently strong, the ability to form free trade agreements acts as strong stumbling blocks.

Beyond the Finish Line: Sustainability Hurdles in the EU–Mercosur Free Trade Agreement

The European Union (EU) and the Southern Common Market (Mercosur) free trade agreement (FTA) aims to increase regional trade and major integration between the regions; after decades of negotiations, in 2019, finalization of the agreement was reached. However, there are several blockages from both parties in the ratification process: whilst few EU members the criticize environmental and sustainability issues within the agreement, the Mercosur partners oppose the imposition of sustainability standards onto the region without adequate financial support. On this topic, the literature is still too poor to build a systematic literature review; thus, the present analysis follows a quasi-historical approach considering the major steps of the EU–Mercosur FTA looking both at the scientific and gray literature. The study underlines how environmental and sustainability issues are at the core of the European policies; thus, themes such as deforestation and pesticides could be a dealbreaker in the ratification of the agreement. For the EU, the FTA with Mercosur could mark a new step in the race towards it being a new “global standard” for sustainability and production.

Analysis of Economic Freedom, Foreign Direct Investment, and Economic Growth

This research analyzes the relationship between economic freedom, foreign direct investment (FDI), and economic growth using the Vector Error Correction (VECM) model and the Granger causality test. Panel data from several free trade agreement countries in the Regional Comprehensive Economic Partnership (RPEC) for 1997 – 2022. VECM captures cointegration relationships and models short-term adjustments toward long-term balance. Meanwhile, the Granger causality test helps identify the direction of the causal relationship between economic freedom, FDI, and economic growth. Empirical results show a long-term but weak cointegration relationship between these variables in the short term. In addition, it was found that there is a two-way causality between economic freedom and economic growth, as well as between FDI and economic growth. These findings imply that policies encouraging economic freedom and attracting foreign investment can increase a country's economic growth. This research provides empirical insights into the important role of economic freedom and FDI in driving economic growth and related policy implications for creating an environment conducive to investment and sustainable economic growth.

Empirical analysis of trade costs and their impact on carbon emissions in RCEP countries

Global economic integration and environmental issues have attracted widespread attention in recent years. As one of the world's most significant free trade agreements, the Regional Comprehensive Economic Partnership (RCEP) significantly impacts trade and the environment. However, research on the relationship between trade costs and carbon emissions still needs to be completed. This study explores the relationship between trade costs and carbon emissions within the framework of the Trade Benefit Theory, which posits that trade liberalization and openness generate economic benefits through increased efficiency, technological advancement, and economic growth. This study analyzes panel data from 12 RCEP countries from 2001 to 2014, employing static and dynamic panel models to examine the relationship between trade costs and carbon emissions. The analysis utilizes mixed regression, fixed (random) effects models, and the systematic GMM method. The results indicate that decreases in trade costs are associated with reduced environmental pollution, aligning with the Environmental Kuznets Curve (EKC) hypothesis, which posits an N-shaped relationship between trade costs and carbon emissions. Implementing RCEP facilitates a decrease in trade-related pollution, suggesting that reducing trade costs can help mitigate environmental pollution. Furthermore, the observed N-shaped EKC for trade costs and carbon emissions highlights the potential of RCEP to reduce the impact of trade-related pollution.

Present and Future of the World Trade Organization

The WTO has played a key role in globalization and the development of free trade; its results are interesting for those countries and transnational companies that lead the value chains; free trade agreements and the broad participation of countries; but above all, having regulated international trade is among the most important. However, there is growing discontent, even in its main promoter (the United States), not to mention in countries for whom the poor results obtained are questioned by the majority of their inhabitants, due to the precariousness of employment, the reduction of purchasing power and the unemployment generated. The differences and controversies between the United States and China create uncertainty about the role of the WTO, slow down investments and hasten a comprehensive restructuring of the system. In key aspects such as dispute settlement and free trade agreements, their processes and procedures.

RCEP: IMPLICATIONS AND CHALLENGES FOR THE EUROPEAN UNION IN A CHANGING GLOBAL ECONOMY

The Regional Comprehensive Economic Partnership (RCEP), emanating from the core principles of the Association of South East Asian Nations (ASEAN), represents a significant evolution in regional economic cooperation. This article delves into the intricate dynamics of RCEP, emphasizing its inception, growth, and the profound implications it holds for the European Union (EU). Tracing the history of ASEAN and its expansion, the paper examines how the ASEAN's Free Trade Agreements (FTAs) with nations outside Southeast Asia, including China, South Korea, New Zealand, Australia, and India, laid the groundwork for RCEP. The study highlights the strategic objectives of RCEP in fostering trade liberalization and economic integration among its member states, while also addressing disputes and promoting regional stability. The signing of RCEP in November 2020 marked a pivotal moment in Asia-Pacific economic relations, promising significant shifts in global trade dynamics. This research critically analyses the potential impact of RCEP on the EU, particularly in terms of trade, foreign direct investment (FDI) inflows, and the broader implications for the global multilateral trading system. The paper also explores how RCEP could reshape the EU's role and strategies in regional and global economic contexts, assessing the challenges and opportunities it presents for EU-ASEAN collaborations. The evolving relationship between Southeast Asia and the EU under the shadow of RCEP, including the promotion of regional trade at micro and macro levels, forms a critical part of this analysis. The study aims to provide comprehensive insights into the multifaceted effects of RCEP on the EU, offering valuable perspectives for policymakers and stakeholders in both regions.

Free Trade Agreements and Inequality: The Prospect for the UK Post-Brexit

This paper examines the potential effects of Brexit on income inequality in the United Kingdom (UK) and utilizes empirical methods to predict these effects. The study focuses on the impact of trade and Foreign Direct Investment (FDI) on income inequality, using macroeconomic data from 1971 to 2019. By employing cointegration techniques and an Error Correction Model (ECM) on annual time series data, the analysis reveals that higher levels of trade have historically reduced income inequality in the UK over the long term. Consequently, changes in trade resulting from Brexit are expected to have a negative influence on the distribution of income and wealth in the UK. On the other hand, the study finds that higher FDI has only had a short-term negative effect on income distribution in the UK.

Capital controls and trade policy

How does optimal capital-flow management change with prevailing trade policies? We study the joint optimal determination of capital controls and trade tariffs in a two-country, two-good model with trade in goods and assets. Because countries are large in both markets, a country-planner can achieve higher domestic welfare by departing from free trade in addition to levying capital controls, despite the cooperative optimal allocation being efficient. However, time variation in the optimal tariff induces households to over- or under-borrow through its effects on the path of the real exchange rate. As a result, optimal capital controls are generally smaller when trade policy is constrained (i.e., by a Free-Trade Agreement), but, absent retaliation, can be larger depending on the paths of underlying fundamentals.