Preferential Trade Agreements Research Articles

Preferential trade liberalization with endogenous cartel discipline: Implications for trade and welfare

AbstractWe consider an international cartel whose members interact repeatedly in their own as well as in third‐country markets. Cartel discipline—an inverse measure of the degree of competition between firms—is endogenously determined by the cartel's incentive compatibility constraint, which strategically links markets that are otherwise independent. This linkage implies that trade cost reductions induce cartel members to adjust their sales, not only because of direct but also because of spillover effects. We apply these ideas to preferential trade agreements and show that the indirect effects can give rise to trade diversion. We also characterize the welfare effects of preferential tariff cuts for all countries and identify circumstances under which preferential trade liberalization is welfare‐reducing.

Weather shocks affect trade policy: Evidence from preferential trade agreements

AbstractWe show that weather shocks affect government trade policy decisions. We exploit variation in rainfall during the growing season within and across countries to show that weather shocks impact agricultural output and trade. Using information on tariff cuts by commodity from preferential trade agreements signed between 1995 and 2014, we then show that weather shocks that happen during the negotiation period correlate strongly with the size of tariff cuts. When weather shocks increase (decrease) a country's capacity to produce a given crop, its government negotiates a smaller (larger) tariff cut. These results are consistent with a political economy trade model with sector‐specific inputs in which the government places more weight on producers relative to consumers in its objective function. They also reveal that governments update their beliefs about domestic agricultural production capacity in response to weather shocks.

Beyond coercion: Weaker states' domestic political motivations for political clauses in preferential trade agreements

AbstractPolitical scientists have debated under what circumstances countries choose to integrate sovereignty‐limiting provisions into their international agreements. In contrast to the conventional wisdom that powerful countries bully weak countries into political acquiescence, weak countries can deliberately adopt such provisions as a deterrence against potential non‐democratic takeovers. Using a novel dataset on political provisions in all preferential trade agreements (PTAs) signed between 1945 and 2018, we find that the greater, the weaker countries' risk of non‐democratic takeovers, the more likely they are to adopt democracy‐promoting and rule‐of‐law provisions in their PTAs. This finding suggests that a government's desire to tie the opposition's hands can also lead it to tie its own hands. Our findings have implications for not only the scholarly and political debates on commitments in international treaties but also the growing literature on non‐trade issues in PTAs.

COOPERATION BETWEEN INDONESIA AND PAKISTAN IN BOOSTING EXPORT PERFORMANCE OF WILMAR INTERNATIONAL’S PROCESSED PALM OIL PRODUCTS

In international relations, trade cooperation is a strategic step for every country to improve the welfare of its people. As a country which rich in natural resources, Indonesia continues to utilize its potential to perpetuate trade with other countries through export activities. One of Indonesia's leading commodities that is valuable in the global market is palm oil. Many countries have trusted Indonesian palm oil products, one of which is Pakistan. The step to facilitate the export process in the palm oil sector is through the Indonesia-Pakistan Preferential Trade Agreement (IPPTA). Through the IPPTA framework, the two countries agreed to reduce tariffs and expand the export-import commodities of both countries. This paper focuses on providing an understanding of the impact of IPPTA at the business to government levels, where the author uses Wilmar International as the subject of research. Using the theory of Trade Cooperations: The Purpose, Design and Effects of Preferential Trade Agreements by Malfred Esig, this study found that there were factors outside of tariffs that hampered the increase in palm oil export performance at Wilmar International, which were identified through global conditions, domestic conditions and internal conditions of the company.

"Data Free Flow with Trust": Japan's struggle to integrate democracy and human rights into digital trade policy.

A powerful regime for regulating trade, the Group of Seven (G-7) has increasingly negotiated its digital trade through bilateral and preferential trade agreements, including with non-member states in the Global South. Focusing on the dominant concept shaping these agreements, Japan's "Data Free Flow with Trust" (D.F.F.T.), we trace its discursively contested emergence and meaning within a national ("Society 5.0") vision for Japan's digital transformation, and its subsequent transnationalization in international fora and institutionalization in global digital trade policy. Drawing on our interviews with Japanese government ministers, business elites, and legal experts who contributed to the processual development of D.F.F.T., as well as diverse additional primary sources, we find that the D.F.F.T. has become more than a trade policy, covering a wider range of social and geopolitical issues. In particular, we show that contention over "data localization measures" has restructured international relations of trust, especially across the Global North/South divide. Ultimately, this research report contributes to our understanding of how D.F.F.T. poses threats to human rights, democracy, and the global knowledge economy that may undermine its goals of enhancing innovation capacity and economic growth.

Impact of Deep Preferential Trade Agreements on Bilateral Value-Added Exports

ABSTRACT This study investigates the impact of deep preferential trade agreements (PTAs) on bilateral value-added exports. The results indicate that deeper PTAs increase bilateral exports through reducing the trade costs and the improvement in the partner country’s governance could also promote it. The heterogeneity analysis shows that the impact of PTAs on higher-income countries is mostly driven by WTO-X clauses. Deep PTAs are more effective for countries with lower policy adjustment costs or better rules of law. This study is important for understanding the effect of PTA provisions on trade and provides a theoretical reference for countries to improve trade policies.

The WTO as Multilateral Diffusion Hub: Institutional Learning in WTO Disputes and the Design of Preferential Trade Agreements

Abstract Institutions are not created in a vacuum—but how do extant institutions influence design choices? Leveraging fragmentation in the global trade order, this paper stresses the relevance of experience and argues that the institutional influence of the World Trade Organization (WTO) extends beyond its jurisdiction through its centrality as multilateral diffusion hub: When states negotiate preferential trade agreements (PTAs), previous dispute settlement experiences in the WTO shape the design of dispute settlement mechanisms (DSMs). National bureaucracies undergo institutional learning processes when participating in multilateral trade disputes and subsequently conclude PTAs with DSMs that are similar to the institutions of the WTO, thus fostering their—decentralized—spread to the network of PTAs. The learning effect is particularly pronounced for states with low bureaucratic capacity. Employing a novel, unitary conceptualization of DSMs in terms of complainant rights shows that the results of this diffusion process generally entail increased levels of complainant rights in PTAs. Importantly, institutional learning is more than mere emulation: States also adapt institutional design to individual context by considering the prior dispute experience of their trading partners. A dual empirical strategy and interviews with PTA negotiators corroborate the learning effect and its relevance during PTA negotiations.

Preferential Trade Agreements and Leaders’ Business Experience

Preferential Trade Agreements and Leaders’ Business Experience

Enhancing Canada’s Beef Exports and Competitiveness in the Global Market

Alberta reports the highest revenues among all provinces in beef cattle ranching and farming,but there is still considerable potential to maximize profits by expanding international trade.In 2022, Canada exported 0.78 million head of cattle and 430,000 metric tonnes of beef, for atotal trade value of C$5.2 billion. That same year, Canada ranked eighth globally in the volumeof beef exports, sixth in the value of beef exports and fourth in the aggregate value of live cattleand beef exports.This study aims to provide a policy brief on Canada’s beef and cattle production and exports,and international market access and conditions. Trade barriers are identified and evaluated, andthe implications of non-tariff measures (NTMs) are examined. These include, for example, the banimposed by the European Union and the United Kingdom on the importation of peroxyacetic acid(PAA)-treated and hormone-treated beef, and the United States’ political/legislative attemptsto invoke the mandatory country-of-origin labelling (CoOL) standard for Canada’s beef exports.This study also discusses the benefits and limitations of preferential trade agreements (PTAs) forCanada’s beef exports, such as the Canada-U.S.-Mexico Agreement (CUSMA); the Canada-EUComprehensive Economic and Trade Agreement (CETA); and the Comprehensive and ProgressiveAgreement for Trans-Pacific Partnership (CPTPP). The study concludes by exploring theopportunities to increase Canada’s beef exports and competitiveness in international markets.The analysis indicates that the Canadian cattle/beef sector would benefit from pursuing generalstrategies to increase its competitiveness in foreign markets by promoting its beef, raisingproduction efficiency and reducing production costs, tackling labour shortages, alleviatingregulatory constraints and integrating novel technologies in beef production and processing.The Canadian cattle/beef sector must increase its competitiveness in international markets anddiversify export destinations while maintaining access to the U.S. market. Canada is a major playerglobally, but it needs to increase its competitiveness in, for example, China, Japan, South Korea,Saudi Arabia, Vietnam, Taiwan and the United Arab Emirates as these markets currently relyheavily on beef imports from Australia, Brazil and the U.S., among other countries.It would be critical to encompass strategies tailored to the market characteristics/conditions ofdestination countries, raise the effectiveness of PTAs and stimulate bilateral business/marketingnetworks. This study emphasizes the importance of sustaining market access to the U.S.,enhancing market access to other foreign countries and pursuing pronounced diversificationstrategies in beef exports to mitigate risks and uncertainties in international markets. It alsounderlines the basic requirement of raising competitiveness vis-à-vis other beef-exportingcountries in various international markets. In this context, trade preferences may not necessarilylead to significant increases in Canada’s beef exports to foreign markets when preferential accessis more pronounced for beef exported from other countries. Also, cost reductions should berelatively significant to effectively compete with other beef-exporting countries and realizeincreases in Canada’s beef exports to international markets.

Multilevel Modelling in Economics: A Way to Test the Natural-Partner Hypothesis

This study applies multilevel modelling to the analysis of trade flows. This methodology can complement the use of the standard gravity equation in addressing the influence of geographical distance on the impact of trade agreements on bilateral trade (the natural-partner hypothesis). The analysis suggests that the simplest, most obvious, and best way to nest country pairs with international trade data is by distance. To this end, a sample of 69 countries with data on domestic flows over the period 1986–2016 was used. This sample accounts for around 85% of world trade data. The estimations suggest that the pro-trade effects of preferential trade agreements decrease with distance to trade partners, while this does not occur with the multilateral trading system. What is more interesting is that the former result only holds for the preferential trade agreements involving goods, which supports the natural-trading partner hypothesis, but not for those that include services. In the latter case, the impact increases with distance. This suggests that deeper preferential trade agreements reduce the cost of distance as a barrier to trade, which probably reflects cultural (regulation) distance.

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.

Indonesia’s Potential Trade Flow to EAEU Countries: The Gravity Model Approach

This research aims to examine the Indonesia’s potential trade flow to EAEU countries using Augmented Gravity Model with Pseudo Poisson Maximum Likelihood (PPML) estimator, revealed comparative advantage (RCA) index, and constant market share analysis (CMSA) index on trade flows data for the period 2002-2022. The results indicates that trade relation between Indonesia and EAEU countries align with Heckscher-Ohlin Theory of trade, which states that dissimilar countries tend to trade more. Furthermore, the finding emphasizes the importance of Indonesia-EAEU preferential trade agreement to reduce or eliminate tariffs which otherwise will increase trade between both parties.

Policy feedback and the politics of trade agreements

Why do interest groups mobilise to change the design of international institutions? The existing research on this topic expects moments when there is a peak in political action, but generally does not consider how such peaks might impact future mobilisations. To fill this gap, this article advances an analysis that draws on policy feedback theory. It shows that the greater the preference distances surrounding existing preferential trade agreements (PTA), the more likely it is for political activity to form around prospective trade deals that share certain key commonalities with those more contentious earlier agreements. The article tests the plausibility of that argument in the design of labour provisions in US and EU trade agreements. It shows that, in the US, NAFTA (ratified 1993) introduced a model of labour provisions that was seen over the years as ‘designed to fail’. As a result, it helped mobilise labour unions against prospective PTAs that bore a resemblance to NAFTA. However, the same did not happen in the EU during the 1990s and early 2000s. This article helps connect public policy research with the literature on the politics of trade agreements. It also serves as a cautionary note to policy makers regarding the long-term effects of PTA design on political activity and underscores the need for carefully projecting the political underpinnings of the enforcement of PTA provisions.

Competitiveness of citrus export and its determinants: a two-way fixed effect panel data model approach.

Pakistan has a conducive condition for the development of a wide range of scrumptious fruits. As a result, the country grows a diverse assortment of tropical and subtropical fruits; the most prized and top-ranked fruit among all fruits grown in Pakistan is citrus. Citrus is the principal fruit that contributes significantly to Pakistan's export earnings and national income. In this study, the cross-border determinants influencing Pakistan's citrus exports to its topmost 22 trading partners are examined using a gravity model technique. This is the first large study from Pakistan by using gravity model to check the impact of various cross-border factors on citrus fruit export. The analysis is based on a panel dataset covering the years 2003 to 2021. To estimate the results, the study used fixed effect regression with time and country fixed effects. The results signify that per capita income, population, and some regional dummies are positively associated with citrus exports from Pakistan. Citrus price, distance, exchange rate, and other regional dummies are observed to have an adverse effect on citrus exports. Trade agreements between Pakistan and trade partners such as free trade agreements, preferential trade agreements, and SAFTA, have been observed as important determinants of citrus exports. Citrus exporters in Pakistan can also benefit from understanding the factors that influence export markets. By addressing the challenges identified in this study, Pakistan can enhance its citrus exports and boost its agricultural sector.

Explaining the politicization of EU trade agreement negotiations over the past 30 years

AbstractAlthough the Transatlantic Trade and Investment Partnership with the USA and the Comprehensive Economic and Trade Agreement with Canada have elicited considerable domestic contestation in Europe, several other agreements have been negotiated into public and media indifference. What explains this difference? In this article, I put forward a number of arguments on the structural causes of the politicization of European Union (EU) trade policy over the past 30 years and test them against a newly collected dataset covering 19 preferential trade agreements. The qualitative comparative analysis suggests that the politicization of EU trade negotiations is determined by the co-occurrence of several, well-defined conditions. More specifically, it tells us that: (1) the Lisbon Treaty's reform of EU trade policymaking is the main driver of politicization, (2) the level of public support for the EU is of particular relevance when it comes to ‘deep and comprehensive’ agreements that touch on sensitive domestic issues, and that (3) high adjustment costs expected from trade liberalization can lead to the politicization of trade negotiations.

Inclusion of gender and labour standards in preferential trade agreements: evidence from North American and Canada-Chile agreements

ABSTRACT This article analyses the causes of the incorporation of gender provisions into preferential trade agreements (PTAs), based an analysis of the reasons for the inclusion of both labour and gender provisions in the North American Free Trade Agreement (NAFTA) and the United States-Mexico-Canada Agreement (USMCA), and in the Canada-Chile Free Trade Agreement (CCFTA). Drawing upon feminist and constructivist analysis, it argues for the importance of ideational factors such as policy emulation, social learning, the formation of transnational advocacy networks (TANs), as well as the role of Global South actors. Gender provisions often contain neoliberal elements that promote female entrepreneurship rather than more transformational approaches. The comparison of the USMCA and the CCFTA shows that the inclusion of stronger gender provisions in labour chapters (as in the USMCA) may be a more effective way to promote the interests of vulnerable workers than the inclusion of a gender chapter.

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.

‘No safe haven’: Why the GATT ‘regional exception’ does not apply to technical barriers to trade

AbstractDuring the last two decades, Preferential Trade Agreements (PTAs) have increased in quantity and broadened in scope. Far from merely reducing tariffs, they now set out a detailed discipline also on behind‐the‐border measures. Due to their trade‐restrictive potential, technical barriers to trade (TBTs) are now systematically regulated in PTAs. Since PTAs discriminate by definition, it is pivotal to understand whether their regulation of TBTs may be reconciled with the multilateral non‐discrimination obligation. Against this backdrop, this article aims to assess whether WTO‐incompatible TBT provisions in PTAs may benefit from the GATT 1994 ‘Regional Exception’, that is, Article XXIV. I will argue that, by virtue of the lex specialis principle, Article XXIV may not shield violations of the TBT Agreement. The impact of this study is two‐fold. First, it shows that Members of the World Trade Organization (WTO) must respect the Most‐Favoured Nation (MFN) clause when integrating their domestic policies. Second, using TBTs as a case study, it proposes some crucial adjustments to WTO case law, that should be considered also when deciding on the interplay between the GATT 1994 and WTO Agreements other than the TBT Agreement.

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.