Preferential Trade Agreements Research Articles

The Impact of China on the Trade-Promoting Effects of PTAs: The Case of Korea and Japan’s PTAs with Latin American Countries

The pursuit of Preferential Trade Agreements (PTAs) by numerous countries, aimed at promoting trade among member nations, is widely acknowledged. Nonetheless, policymakers often voice concerns regarding the potentially short-lived nature of PTAs’ trade-promoting effects. In light of this concern, we present empirical evidence that substantiates the transient nature of the trade-enhancing impacts associated with PTAs. We identify the expanding economic influence of China in the global trade sphere as a primary driver for this trend. These findings are reinforced by a compelling illustration within the context of the PTAs involving Korea and Japan with Latin American countries. Our case study suggests that the attenuation of the export-promoting effects of Korea and Japan’s PTAs with their Latin American counterparts can be attributed to the penetration of Chinese goods, the sustained reduction of Most Favored Nation (MFN) tariffs, and the proliferation of comprehensive PTAs within regional contexts.

Determinants of PTA design: Insights from machine learning

Preferential trade agreements (PTAs) have emerged as the dominant form of international trade governance. Provisions included in PTAs are increasingly numerous, broad in their purview, deep in their scope, and varied between agreements. We study the economic, political, and geographic determinants of PTA design differences. For each of the hundreds of classified PTA provisions, we consider 287 country-pair characteristics as potential determinants, covering many individual mechanisms the literature has studied. We employ random forests, a supervised machine learning technique, to handle this high dimensionality and complexity. We use a robust variable importance measure to identify the most critical determinants of the inclusion of each PTA provision. Contagion due to competition for export markets, geographic proximity, and governance quality emerge as essential determinants of PTA design. These results motivate future exploration of individual mechanisms our exercise points to.

Exploring the Heterogeneous Impact of Trade Agreements on Trade: Depth Matters

Abstract One of the most relevant features in the context of international trade in recent decades is the increase in the depth of trade agreements. The aim of this article is to explore the heterogeneous effect of preferential trade agreements (PTAs) on bilateral trade flows including their depth in addition to other agreement characteristics such as the geographical scope of the member countries, their degree of development, or their nature. To measure depth, we follow the most recent works that propose indirect instead of direct measures. Once we control for depth, our results reveal that (i) the positive effect of regional PTAs is notably larger for deep agreements whereas the shallow interregional agreements do not seem to increase bilateral trade flows; (ii) North–North PTAs only boost trade when they exhibit a high depth level; and (iii) the depth is not a relevant factor for plurilateral agreements and those that consist of the adhesion of a country to an existent PTA.

Norm Entrepreneurship in Digital Trade: The Singapore-led Wave of Digital Trade Agreements

Abstract Rulemaking in digital trade is proceeding apace. Many preferential trade agreements contain dedicated e-commerce or digital trade chapters and some states have entered into stand-alone digital economy agreements. This article seeks to establish whether, and to what extent, normative change is occurring in digital trade agreements, the nature of any changes, and identify which states are acting as norm entrepreneurs. We employ a new method of legal coding, systematically comparing the nature and prescriptiveness of digital provisions in 12 trade agreements concluded between 2019 and 2023. We find evidence of substantial policy innovation, and identify Singapore as the key norm entrepreneur. A new wave of ‘Singapore-led’ agreements substantially expands the scope of digital trade, to cover areas such as digital identities, e-invoicing and e-payments, the governance of AI, and regulation of new digital technologies. Commitments are typically couched as soft rather than hard law, reflecting the nascent stages of rulemaking. Norm entrepreneurship on the part of Singapore and its allies reflects a desire to position themselves as ‘digital hubs’ in the global economy, spur rulemaking in areas where innovation is ahead of regulation, and promote digital interconnectivity at time of regulatory divergence and geopolitical rivalry.

Trade Liberalization, Economic Activity, and Political Violence in the Global South: Evidence from PTAs

Abstract This paper investigates the impact of agricultural trade liberalization on economic activity and political violence in emerging countries. We use data on all Preferential Trade Agreements (PTAs) signed between 25 low- and middle-income countries and their high-income trade partners between 1995 and 2013. We exploit the implied reduction in agricultural tariffs over time combined with variation within countries in their suitability to produce liberalized crops to find that economic activity increases differentially in affected areas. We also find strong positive effects on political violence, and present evidence consistent with both producer- and consumer-side mechanisms: violence increases differentially in more urbanized areas that are suitable to produce less labor-intensive crops as well as crops that are consumed locally. Our estimates imply that economic activity and political violence would have been around 2% and 7% lower, respectively, across countries in our sample had the PTAs not been signed.

Deep Trade Agreements and Firm Ownership in GVCs

Abstract This paper focuses on the effect of preferential trade agreements and their depth on firm-to-firm ownership, in particular, along global value chains. It measures shareholder–affiliate ownership links at the country-sector-pair level to distinguish between vertical and horizontal links. The findings show that preferential trade agreements boost vertical international investment links (both backward and forward) while reducing horizontal investment. Deep preferential trade agreements stimulate investment particularly for sector pairs, where a high input specificity prevails.

Defensive issue linkage: exploring the origins of environmental content in trade agreements

ABSTRACT The political linkages between trade and environmental policy have rapidly increased since 1990. In this paper, I suggest a novel mechanism behind this phenomenon – ‘defensive issue linkage.’ As the scope of trade law expanded, it increasingly touched upon domestic and international environmental policies. As a result, environmental groups mobilized to seek carve-outs that preserve their traditional policy space. However, their opposition also led to the increased inclusion of proactive clauses that further the linkage between trade and the environment as policymakers strove to bolster ratifying coalitions. Using qualitative evidence from the US, EU, and Malaysia, I show that environmental groups mobilize in reaction to the expanding scope of trade policies and explore how this influences trade agreement content. A quantitative analysis of preferential trade agreements concluded between 1989 and 2016 then shows that general patterns of environmental clause inclusion are consistent with the channel of ‘defensive issue linkage.’

Spatial spillovers in trade agreement memberships: Does institutional proximity matter?

AbstractThis paper examines spatial spillovers in the formation of preferential trade agreements (PTAs) through a new channel of institutional proximity. Our dependent variable is the status of PTAs between country attributes within a country‐pair. The explanatory variable of interest is the status of PTAs in neighbouring country‐pairs that share proximity in institutional development. We consider democracy and economic freedom as the main aspects of institutions, and use both as the fundamental components of institutional distance between country‐pairs. Employing a spatial econometric method, we find strong evidence of the institutional interdependence of PTAs: country‐pairs tend to influence each other's decision on the formation and the chosen type of PTAs (i.e., deep or shallow), such a neighbourhood effect increases with institutional proximity and is more prominent for the decisions on the type of PTAs. The institutional spatial channel is robust to various robustness checks.

Digital Trade in the EU–New Zealand Free Trade Agreement: An Appraisal

The increasing reliance on digital technologies for cross-border economic activity has sparked the quest for adequate rules. Preferential trade agreements have become the primary platform for digital trade rulemaking and the recently signed Free Trade Agreement (FTA) between the European Union (EU) and New Zealand is one of the latest additions to these far-reaching regulatory efforts. The EU– NZ FTA is a particularly instructive case study, as it brings together two important legal entrepreneurs in the area of digital trade law that, however, have different positions in the regulatory landscape and different domestic priorities. The article seeks to reveal the points of convergence and divergence between the two parties and also shows how these could be reconciled with the concluded EU–NZ deal. In the latter context, the article evaluates the normative value and the potential impact of the agreement as well as situates it in the broader and geopolitically complex landscape of digital trade rulemaking. digital trade, data flows, data protection, electronic commerce, free trade agreements, European Union, New Zealand

Facilitating Services Trade Through the Adoption of Good Regulatory Practices: The New Reference Paper on Services Domestic Regulation

The agreement by sixty-nine WTO Members on a set of disciplines on the transparency, predictability, and efficiency of services regulation - otherwise known as the ‘Reference Paper on Services Domestic Regulation’ - marks the first negotiated outcome in the field of services trade since the extended negotiations on basic telecommunications and financial services in 1997. The outcome illustrates, on the one hand, the challenge of arriving at multilaterally agreed results in the WTO even for substantively non-controversial issues. On the other hand, it is testament to the ability of large groups of like-minded WTO Members to cooperate and deliver without political linkages with other negotiating issues. This contribution aims to provide an overview of the evolution of negotiations on domestic regulation at the WTO, and elaborates on how the main features of the new Reference Paper complement and build upon regulatory disciplines contained in the GATS. While not yet legally into force, recent evidence suggests that the new Reference Paper will become a standard building block for future economic cooperation agreements and its implementation is expected to generate broad economic benefits. services domestic regulation, WTO, Joint Initiative, preferential trade agreements, economic benefits, good regulatory practices

Between contestation and compromise? An evolutionary analysis of eurosceptic MEPs in the EP’s INTA committee

ABSTRACT This article aims to unravel the connection between the representation of Eurosceptic MEPs and the EP’s position on Preferential Trade Agreements. As a result of the growing importance of the EU’s trade policy and the uneven contestation thereof in public space, this question seems of great importance. By zooming into the EP’s INTA Committee, this article shows how the increasing representation of Eurosceptic MEPs shapes their mobilization on PTAs. More specifically, the article examines INTA's Own Initiative Procedure reports in the EP’s 6th, 7th, and 8th legislative terms. Using a facet of the Post-Functionalist framework, it retraces the evolution of Eurosceptic MEPs’ mobilization at the Committee and plenary levels, and points to the impact thereof on the EP’s position on PTAs. In terms of results, the article finds that while Eurosceptic MEPs remain unable to substantially shape the EP’s position, Eurosceptic MEPs can increasingly build contesting coalitions.

Trade agreements and CO2 emissions in Asian countries: accounting for institutional heterogeneity.

This paper aims to measure the impact of environmental provisions in free-trade agreements on pollution levels in 40 Asian economies for the period 1990-2019. Following the failure of WTO negotiations, there has been a rapid proliferation of preferential trade agreements incorporating various types of environmental clauses. We exploit such changes to assess their influence on pollution emissions. We use a DOLS approach that considers the potential endogeneity of environmental clauses. Further, panel vector error correction models (VECM) are employed for examining the presence of a cointegration relationship among the variables studied. Overall, our findings indicate that these environmental clauses have heterogenous effects on CO2 emissions. We do not find significant effects of environmental clauses on pollution. However, this result is driven by environmental provisions that are not legally enforceable. We do find a positive effect of environmental clauses with a higher level of legalism on the environmental quality. These results show that the inclusion of environmental provisions in trade agreements is not sufficient by itself. Such provisions should incorporate a legally enforceable framework to effectively address environmental concerns. These findings have significant policy implications for Asian countries.

The Evolution of Digital Trade Law: Insights from TAPED

Abstract This article discusses and contextualizes the very recent advancements in digital trade regulation based on the insights provided by the Trade Agreement Provisions on Electronic-commerce and Data (TAPED) dataset. Within the time frame of January 2020 to November 2023 that we analyze, digital trade negotiations have increased in preferential trade agreements (PTAs) significantly, and there has been a sharp rise in the negotiation of new types of treaties, known as ‘Digital Economy Agreements’. Beyond the critical advances in substantive rulemaking, we observe non-traditional actors stepping into the gap left by the shifting interest of traditional rulemakers to craft rules that best fit their policy priorities. Additionally, we see a broadening of topics beyond conventional digital trade matters, underscored by commitments of limited legal enforceability. The TAPED dataset has been updated to reflect these recent developments, emphasizing the importance of regular reviews to stay current and accurately inform research and policymaking in the area of digital trade regulation.

Dynamic preferential trade agreement formation and the role of political economy

AbstractUsing a dynamic preferential trade agreement (PTA) formation model, we show that political biases in exporting and import‐competing sectors substantially impact the extent of PTA formation. While both exclusion and free riding incentives constrain the expansion to global free trade in a free trade agreement (FTA) game, only the former incentive arises in a customs union (CU) game. When we endogenize the choice between FTAs and CUs, the tension between the flexibility benefit of FTAs and the coordination benefit of CUs reveals that FTAs always serve as PTA building blocks while CUs may serve as PTA building or stumbling blocks.

On the Move? Mode 4 and the Temporary Movement of Natural Persons in Preferential Trade Agreements

On the Move? Mode 4 and the Temporary Movement of Natural Persons in Preferential Trade Agreements

Do Preferential Trade Agreements Stimulate Non-Resident Patenting? Evidence from BRICS

Do Preferential Trade Agreements Stimulate Non-Resident Patenting? Evidence from BRICS

Cross-Border Factors and Trade Agreements Affecting Meat, Milk and Fisheries Exports from Pakistan: Evidence from the Gravity Model Analysis

The livestock and fishery sectors of Pakistan, not only contributes to GDP but can also considerably boosts export revenue for the country. This study identifies the cross-border factors and trade agreements affecting meat, milk, and fisheries exports from Pakistan. To accomplish this objective, the study used three different panel dataset of countries that import milk, meat, and fish from Pakistan. Results from commodity-specific gravity models show that increase in income in importing countries increases exports of the three products from Pakistan. Moreover, distance between Pakistan, and milk and milk products importing countries significantly reduces milk and milk products exports from Pakistan. Furthermore, an increase in the population of the age group of 65 and above increases milk and milk products exports. Besides, an increase in exchange rate in importing countries also decreases Pakistani meat and fishery exports. Countries who signed TIFA with Pakistan received higher exports of milk and milk products from Pakistan. The free trade agreements of other countries with Pakistan results in lower meat exports as compared to transit trade agreements. Finally, countries who signed preferential trade agreements with Pakistan received higher fishery exports. Findings of this study would provide valuable input for policymakers which in turn will enable them to devise appropriate commercial policies for milk, meat, and fishery products.

Pakistan’s Trade Insight in Terms of Gravity Model: An Empirical Evidence

This study is intended to analyze the determinants of the trade potential of Pakistan. For the said purpose, the study employed an augmented gravity model over the data of 12 trading partner countries of Pakistan for the period of 20 years from 2002 to 2022. The dependent variable is merchandise trade, while the independent variables consist of core variables i.e., GDP & bilateral distance, and explanatory variables like population, common border, and preferential trade agreement. Breusch-Pegan and Hausman's tests were used for model selection, which proposes that the Random effect model is appropriate for estimation. The results confirm that distance among trading states hurts trade between them. Although the GDP of Pakistan shows a positive effect on trade the relation is inconsequential. However, the impact of GDP on trading associates of Pakistan is positive and highly substantial. The population of trading allies of Pakistan is showing a significant positive impact on trade. Common border and preferential trade agreements between the trading partners have a significant negative influence on trade. The study concludes that for Pakistan, the larger the distance with its trading associate country the smaller the trade among them and Pakistan has greater trading potential with larger economies as compared to smaller ones.

Environmental Provisions in Trade Agreements

This article investigates the impact of environmental clauses in regional trade agreements on the international trade of CAN and MERCOSUR countries between 2001 and 2019. We use a gravity model estimated with the PPML estimator to analyze the relationship between environmental provisions in trade agreements and total exports. We find that the simple inclusion of environmental provisions does not have a significant effect on trade. However, the presence of a Preferential Trade Agreement (PTA) in the midst of compliance is associated with a negative and significant effect on total exports. This result is accentuated if the trade occurs in a South-North structure. This finding complements previous research and provides a more complete understanding of the impact of environmental clauses on international trade in the countries of the region.

Centralization of trade agreements network and global value chain participation

We argue that a country’s position in preferential trade agreements (PTAs) network affects its global value chain (GVC) participation level through two opposite effects: the resource allocation effect, which promotes the GVC participation level, and the market substitution effect, which decreases it. Using data from 43 countries over the 2000–2014 period, we find that the overall centrality of a country's position in the ego-centered PTAs network is positively associated with its GVC participation with other member countries, suggesting that the resource allocation affect dominates the market substitution effect. However, upon decomposing the PTAs network into private and common networks, we find that the centralization of a country's position in the private PTAs network has a negative effect on its GVC participation. In contrast, the centralization of a country's position in the common PTAs network has a positive effect on its GVC participation. Furthermore, the centralization of the private network weakens the effect of individual deep PTAs on bilateral GVC participation, while the centralization of the common network strengthens the effect of individual deep PTAs on bilateral GVC participation. A series of tests confirms the robustness of our main findings.