Preferential Trade Research Articles

Analysing Trade Creation and Trade Diversion effects in ECOWAS Regional Trade Agreement

Aim/Purpose – The study focuses on trade creation and trade diversion effect in the Economic Community of West African States (ECOWAS) regional trade agreement. It examines if the ECOWAS regional trade agreement has brought about trade creation and/or trade diversion before the period of ban on certain items of importation by the Nigerian government as against the terms of the agreement. 
 Methodology – The study uses augmented gravity model. Estimations were carried out on bilateral trade flows, trade creation and trade diversion within the region. Secondary data (2008-2018) were obtained from reliable sources. Ordinary least squares (OLS) and panel data regression was used to analyze the data. 
 Findings – It was found that the GDP (wealth), population and political stability of the exporting countries will significantly foster intra-regional bilateral trade flow while variables like land area, landlocked and distance will significantly reduce bilateral trade flow in the region. The population, landlocked, political stability and corruption perception variables of the importing countries are found not to be statistically significant. R2 being the coefficient of determination falls between 54.8% and 63.3% which implies that the independent variables have been able to explain 54.8% to 63.3% of the total variations in the dependent variable.
 Research implications – Membership of some of the ECOWAS members in Global System of Trade Preferences among developing countries (GSTP) was found to have resulted in trade diversion; whereas, participation of some of ECOWAS members in West African Economic and Monetary Union (WAEMU) has contributed to the level of trade creation in ECOWAS region.
 Originality/value/contribution – The level of trade creation in the ECOWAS region can be improved upon provided all member states adhere strictly to the terms of the agreement.

Digital services and digital trade in the Asia pacific: an alternative model for digital integration?

ABSTRACT This article explores digital integration in the Asia Pacific through a comparative analysis of four preferential trade agreements (PTAs): (i) the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP); (ii) the Regional Comprehensive Economic Partnership Agreement (RCEP); and two-digital only agreements: (iii) the ASEAN Ecommerce Agreement; and (iv) the Digital Economy Partnership Agreement. This article argues that although Asia/ASEAN-led PTAs such as RCEP and ASEAN E-Commerce Agreement appear less ambitious at first sight, when compared to digital trade chapters in PTAs led by western states such as the CPTPP, they are both relevant and appropriately suited to foster digital trade integration in the region. Viewed from the perspective of New Asian Regionalism, these agreements contribute substantially to the global economic order by leveraging the collective power of the Asia-Pacific through a pragmatic, incremental approach. By combining soft law mechanisms with specific legal obligations, these PTAs have better-addressed variations in digital development levels and policy preferences across countries, eventually leading to meaningful consensus-building and long-term engagement in complex areas of digital regulation.

Politicisation, business lobbying, and the design of preferential trade agreements

Our paper addresses the question of how governments respond to the politicisation of preferential trade agreements (PTA). How have governments responded to business interest mobilisation while negotiating PTAs? Moreover, if there has been an increase in the salience of a trade agreement, has this changed the government response? First, we assess politicisation in terms of the mobilisation patterns of private sector interests during PTA negotiations. Our central argument is that governments liberalise more when a broad range of business interests involving a large number of sectors mobilise in response to trade negotiations, as this would provide legitimacy to their policy positions. Second, we study governments’ reactions to the level of salience of the trade agreement at hand. We argue that governments liberalise less when the agreement in question is highly salient and provokes increased public debate. We take an actor-centred and comparative approach to our research questions and use a novel dataset of 157 PTAs covering the period from 2005 to 2018. Both of our hypotheses are supported by our analysis. Our results also reveal an important difference between PTA ‘depth’ and ‘rigidity’, which are often perceived as closely correlated in assessing trade openness.

British Perspectives on the GATT Article XXIV Negotiations Following the First EC Enlargement: ‘Probably More Important and More Difficult than the Consideration of the Treaty of Rome Itself’

The accession of Denmark, Ireland and the United Kingdom (UK) to the European Communities (EC) in 1973 triggered negotiations in GATT (the General Agreement on Tariffs and Trade). GATT’s contracting parties were entitled to ask whether the enlarged EC adequately fulfilled the criteria for a Customs Union (CU) that Article XXIV set; and countries whose market access to the acceding states was impaired because of changes to tariff bindings could seek redress. The formal negotiations, following on from President Richard Nixon’s announcement of his New Economic Policy in August 1971, began in March 1972, and concluded in July 1974. The USA—the EC’s main interlocuter—whilst supporting European integration from a political perspective, was highly critical of the Common Agricultural Policy (CAP), and the EC’s web of preferential trade agreements. The UK, fearful that disagreement could trigger trade conflict, attempted to mediate between the two, trying to curb US expectations whilst nudging its EC partners to be more generous in their tariff concessions. But, as in the Dillon Round, the EC tenaciously rebuffed criticism whilst defending its right to expand its CU. The CAP emerged more-or-less unscathed.

ЄВРОПЕЙСЬКИЙ СОЮЗ: ІСТОРІЯ СТАНОВЛЕННЯ ТА ЙОГО ЗНАЧЕННЯ ДЛЯ УКРАЇНИ

ЄВРОПЕЙСЬКИЙ СОЮЗ: ІСТОРІЯ СТАНОВЛЕННЯ ТА ЙОГО ЗНАЧЕННЯ ДЛЯ УКРАЇНИ

Does regionalism increase industrial policy space? An analytical framework applied to the East African textiles and apparel sector

We introduce a multidimensional and multilevel framework for industrial policy space as the set of legally permitted, economically viable and politico-institutionally feasible policy options for industrial development, given constraints at the national, regional and global levels. This is applied to the East African Community (EAC) textiles and apparel (T&A) sector, using data from policy documents and semi-structured interviews. The EAC customs union nominally transfers trade policy sovereignty to the regional level, but we present evidence showing how the duty remission scheme allows governments to provide targeted trade policy rents to domestic T&A firms, maintaining national legal policy space. This comes at a cost, because firms benefiting from national duty remission rents may not sell their goods duty free in other EAC countries, so the expanded economic policy space offered by regional integration is curtailed. In the political-institutional sphere, the EAC allowed a new policy option to emerge at the regional level – import substitution of used clothes – but global-level policy space constraints prevented implementation when US authorities threatened to remove trade preferences underpinning thousands of jobs. Regional integration policies should take into account tensions between different dimensions and levels of industrial policy space to maximise prospects for sustainable development.

Preferential trade agreements, externalities, and domestic policy

AbstractAs multilateral trade barriers fall, there are increasing concerns that domestic policies will be used to undermine tariff cooperation. We examine how the ability to use domestic instruments affects the formation of trade agreements, and the resulting implications for the pursuit of free trade. We examine how optimal tariffs relate to domestic policy choices, and how negotiated restrictions on trade policy affect both domestic policies and the incentives to enter different trade agreements. We show that unrestricted domestic policy can lead to very different equilibrium trade agreements than with exogenous domestic policy.

Bargaining Power in a Globalized World: The Effect of Global Value Chains in Trade Negotiations

AbstractWhat determines the bargaining power of states in international trade negotiations? The literature focuses predominantly on economic strength as the determinant of bargaining power. However, this explanation neglects the reality of modern trade, which is characterized by the globalization of production and high levels of economic interdependence. I argue that this interdependence undermines the effect of economic strength on the bargaining power of states. Specifically, I hypothesize that the effect of economic strength declines when a country's companies rely on inputs for their production from a negotiation partner because they are integrated into global value chains. The more a country's firms are dependent on a partner country, the less that country is able to coerce concessions from the partner country by bringing to bear its economic strength. To test this hypothesis, I use a dataset covering concessions on liberalization of the services sector made by 54 countries in 61 preferential trade agreements. By calculating the relative concessions of each partner, I construct a quantitative indicator of the outcome of trade negotiations. This indicator should reflect the underlying bargaining power of each negotiating party. The results of a regression analysis of these negotiation outcomes mostly support my hypotheses.

Is a Free Trade Agreement More than Merely a Trade Policy? People's Preferences for Free Trade Agreements and the Security Factor

Abstract What determines people's preferences regarding trade policy? Existing studies have assumed that people consider trade policy merely trade politics; accordingly, these studies have focused on economic factors, such as benefits to individual or national welfare; ideational factors, such as xenophobia; or domestic political factors. This paper reveals that the international political factor of national security influences ordinary people's preferences for trade policy. While several studies have addressed the effect of the national security factor, they did not persuasively reveal the causal mechanism of the relationship between the national security factor and people's trade preferences. The present study conducted a factorial survey experiment to investigate the causal effect and the causal mechanism of the security factor on people's preferences regarding free trade agreements (FTAs). The results of the experiment conducted in Japan reveal that ordinary people consider the national security factor along the so-called realism path in forming their opinions regarding FTAs.

Intellectual property‐related preferential trade agreements and US offshoring to developing countries

AbstractInternational standards in the protection of intellectual property rights (IPRs) are increasingly guided by bilateral and regional preferential trade agreements (PTAs). We estimate the effect of these IP‐related PTAs on US offshoring in developing countries. We utilize a difference‐in‐difference empirical methodology that addresses several sources of endogeneity and exploits industry variation in the importance of IPRs. IP‐related PTAs are associated with a substantial increase in US offshoring in IP‐intensive industries relative to non‐IP‐intensive industries. This increase is concentrated within the boundaries of the multinational firm. PTA‐induced IPRs reform impacts both the intensity and composition of multinational activity in developing countries.

Expanding, Complementing, or Substituting Multilateralism? EU Preferential Trade Agreements in the Migration Regime Complex

Intense pressure for international solutions and weak support for multilateral cooperation have led the EU to increasingly rely on its strongest foreign policy tool in the pursuit of migration policy goals: preferential trade agreements (PTAs). Starting from the fragmentary architecture of the migration regime complex we examine how the relevant content of the EU PTAs relates to multilateral institutions. Depending on the constellation of policy objectives, EU competence, and international interdependence, we propose a set of hypotheses regarding the conditions under which EU bilateral outreach via PTAs expands, complements, or substitutes international norms. Based on an original dataset of migration provisions in all EU PTAs signed between 1960 and 2020, we find that the migration policy content in EU PTAs expands or complements the objectives of multilateral institutions only to a very limited extent. Instead, the predominant constellation is one of substitution in which the EU uses its PTAs to promote migration policy objectives that depart from those of existing multilateral institutions.

Preferential Trade Agreements, Geopolitics, and the Fragmentation of World Trade

AbstractFailure to reestablish an effective World Trade Organization (WTO) dispute settlement procedure, stop the erosion of multilateral rules and end the China–US trade war causes capitals to rethink trade policy. One response is to redouble efforts to strike trade agreements with major trading partners. Already countries accounting for about 78% of world Gross Domestic Product (GDP) are members of mega-regional agreements, and based on our computations, preferential trade agreements (PTAs) will soon cover about two-thirds of world trade. Can PTAs replace a fading WTO or mitigate its effects? Amid deepening geopolitical rifts, how will trade relations among China, the EU, and the US, each a hegemon in their respective regions, evolve, and what will be the impact on smaller economies? In short, how will a trading system based increasingly on PTAs and weak multilateral rules look, and how will nations adapt? Absent reforms, the trading system is likely to fragment progressively into regional blocks organized around the hegemons. Trade within the regional blocks, mainly conducted under a mega-regional agreement, will likely remain quite open and predictable, but without strict multilateral rules and where PTAs are absent (as they are among the hegemons), interregional trade relations will become increasingly uncertain and unstable.

How do digital trade rules affect global value chain trade in services?—Analysis of preferential trade agreements

AbstractAs international trade practices continue to develop, more than half of all international service trade has been digitised, with digital trade rules becoming a key factor affecting the development of global value chain (GVC) service trade. This study constructs the depth and scope indicators of digital trade rules included within preferential trade agreements (PTAs). We then investigate the role that digital trade rules play in promoting service trade along GVC using a gravity model framework. From our analysis, we find that both the depth and the scope indicators of digital trade rules have a significant promotional effect on GVC service exports, with the impact on GVC forward service exports being greater than the impact that was felt on GVC backward service exports. We also find that the GVC trade promotion effect is affected by income level, types of PTAs and the differences in regulatory quality that exist between countries. Finally, by developing a dynamic model that includes a set of leads and lags for digital trade rules' variables, we find that the impact of digital trade rules on GVC trade in services has both an anticipation and phasing‐in effect.

The Asymmetric Effects of Deep Preferential Trade Agreements on Bilateral GVC Participation Levels

ABSTRACT Although deepening of preferential trade agreements (PTAs) can promote the global value chain (GVC) participation of member countries, we argue that this effect is asymmetric for countries, which are at different levels of economic development. Specifically, deepening of PTAs has a stronger positive impact on GVC participation level of developing member countries than that of developed member countries. Furthermore, compared to the commodity provisions of PTAs, deepening of the factor provisions is more likely to generate a significant asymmetric effect. Empirical analysis using panel data, which covers 43 countries (including some emerging economies) over the 2000–2014 period, supports our predictions. Our findings are also confirmed by a series of robustness tests including the consideration for potential endogeneity issue.

The impact of preferential trade agreements on the duration of antidumping protection

AbstractThis paper examines the impact of preferential trade agreements on the duration of antidumping protection. We employ a two‐step selection model where the first step accounts for the impact of membership in a preferential trade agreement on the original antidumping determination and the second step estimates the impact of membership in a preferential trade agreement on the duration of the measures. We find the duration of antidumping protection is about 17% shorter for preferential trade agreement members compared with targeted countries that are not preferential trade agreement members. The impact on duration depends largely on whether preferential trade agreements have rules related specifically to antidumping. Preferential trade agreements with rules are associated with a 28% reduction in the duration of protection, whereas the duration for preferential trade agreements without rules is not statistically different from the duration for non‐preferential trade agreement countries. While the duration of antidumping measures against China is longer than for other countries, the impact of preferential trade agreement rules is robust to controlling for China.

The relationship between market information and entrepreneurial orientation: the case of smallholder honey producers in Northern Uganda

PurposeThe purpose of this study was to determine the influence of market information on entrepreneurial orientations of smallholder honey producers.Design/methodology/approachA cross-sectional study design with sample of 250 honey producers was used. Structural equations modeling was used to analyze the hypothesized relationships.FindingsResults show that product quality, trader preferences and consumer preferences are the main market information needs that influence entrepreneurial orientation of honey producers. Further, the attributes of market information quality, i.e., information credibility, timeliness, accuracy and usability positively influence entrepreneurial orientation.Practical implicationsResults of this study calls for prioritization of better access to regular, reliable and usable market information for honey producers in development programs and policies so as to enhance farmer entrepreneurial orientations and product development.Social implicationsSmallholder honey producers are more likely to efficiently deliver innovative products if development interventions across the public and non-public sector divide become responsive to their marketing information needs as well the quality of market information provided.Originality/valueThe study uses original data from honey producers to demonstrate the role that marketing information needs as well as market information quality play in catalyzing smallholder farmer entrepreneurial orientation.

Trade effects of non-economic provisions in trade agreements

We assess the relationship between non-trade provisions (NTPs) pertaining to labor standards and the environment in preferential trade agreements (PTAs) and bilateral exports of environment and labor-intensive products between PTA partners, controlling for aid-for-trade, development assistance for labor and environment-related projects, and the enforceability of NTPs. NTPs are associated with greater exports of environment- and labor-intensive goods from high-income PTA members, while there is a negative relationship between NTPs and labor-intensive exports from developing countries. Bilateral exports of donors granting aid for trade are strongly associated with a higher propensity of recipients to participate in deep PTAs. Results are consistent with arguments that NTPs may increase trade costs for developing countries and that NTPs in part reflect commercial interests of high-income countries.

Target, Information, and Trade Preferences: Evidence from a Survey Experiment in East Asia

AbstractProtectionist measures often have target countries, and public support for such measures depends on who the targets are. We identify such target effects on protectionist sentiments and examine the effects of information in tempering protectionist sentiments in East Asia. Using an original survey experiment in China, Japan, and South Korea, we test how providing information about the costs of protectionism changes public attitudes toward targeted protectionist measures. We found that providing a target country identity increased public support for protectionism by 8.6%. Providing cost information, on the other hand, reduces support for protectionism by 10%. We also found that information and target effects persist in the presence of the other: Receiving cost information reduces support for both general and targeted protectionism but does not necessarily mute the target effect. Similarly, when reputation and retaliation costs are associated with protectionism, knowing a target country identity still increases public support for protectionism.

Intra‐ and extra‐regional trade costs: A comparative approach to Latin‐American performance

AbstractThe world expansion of trade in manufactured goods has been more dynamic than production over the last 25 years. The greater trade openness was due more to the growth of extra‐regional trade than to intra‐regional trade. Regions and trade agreements performed heterogeneously. Using a structural gravity model, we obtain that different mechanisms of trade liberalisation complemented each other, through the reduction of Most Favoured Nation (MFN) tariffs, the expansion and deepening of existing plurilateral agreements and the incorporation of new deeper agreements. The contribution derived from the reduction of MFN tariffs stands out, followed in importance by the component of preference for openness and trade facilitation. The contribution of the preferential channel via preferential trade agreements has been more important for extra‐regional than intra‐regional trade. For Latin America, heterogeneity is the fundamental characteristic, from the protectionism of Argentina and Brazil to a better openness performance of the countries of Central America and the Caribbean, and the members of the Andean Community (CAN) with an intermediate behaviour. Mexico, Colombia, Chile and Peru, economies from different regions, are the most open in Latin America. The concept of open regionalism is highlighted: without non‐discriminatory trade openness, there is no regionalism that can significantly reduce trade costs.

The Economic Impact of Deepening Trade Agreements

Abstract This paper explores the economic impacts of preferential trade agreements, conditional on their level of ambition. It clusters 278 agreements, encompassing 910 provisions over 18 policy areas and estimates the trade elasticity for the different clusters. These elasticities are used in a series of general-equilibrium counterfactual situations for endowment economies, revealing that deepening existing agreements (the intensive margin of regional integration) could boost world trade by 3.9 percent and world GDP by 0.9 percent. The expected gains from deepening agreements within or across regions vary depending on the initial depth of agreements and the size of regional markets.