Preferential Trading Arrangements Research Articles

Trade and Peace

theoretical innovations, the empirical findings and problems, and the most promising methodological tools for moving the frontiers of knowledge in this area forward over the next several years. One central research question that emerges from the existing literature is the strength and causal nature of the relationship between international commerce and conflict. John Oneal's contribution to the book provides new estimates, updating earlier studies by himself and Bruce Russett (Oneal and Russett 1999; Russett and Oneal 2001) with new trade and GDP (gross domestic product) data compiled by Kristian Gleditsch (2002), and using statistical techniques that control for temporal dependence in time series data. Oneal continues to find a significant and strong relationship between trade and peace. By contrast, other contributors find that the trade-peace relationship is a contingent one. Christopher Gelpi and Joseph Grieco, for example, provide new empirical findings that the trade-peace relationship is stronger for jointly democratic pairs of states than for other dyads, and in fact that the relationship is inverted for pairs of autocracies. Mansfield's chapter summarizes his collaborative work with Jon Pevehouse and David Bearce on the pacifying effects of preferential trading arrangements. They find a strong association between trade and peace among states that are members of common trading arrangements, but relatively little association for states that are not. Both these chapters offer well thought-out theoretical explanations for these effects. Several chapters address the recent bargaining theory critique of the standard liberal-trade-causes-peace argument (Morrow 1999; Gartzke, Li, and Boehmer 2001). Strategic bargaining theory sees war as a consequence of asymmetric information about states' interests and capabilities rather than as a result of the costliness of war itself. Accordingly, economic interdependence should affect the likelihood of conflict not by raising the costs of war, as the conventional liberal argument holds, but by promoting transparency and facilitating costly signaling. Erik Gartzke hypothesizes that the reaction of free capital markets to looming conflict with trading partners provides a credible signal to foreign audiences about their own state's bargaining resolve. James Morrow suggests using events data to look for evidence of signaling through the use of trade sanctions--for example, are certain patterns of trade disputes more common for highly interdependent states than for states with lower levels of trade? Arthur Stein's contribution, on the other

Economic cooperation and integration in East Asia

Recent developments in the relationship between East Asian countries and prospects for further cooperation are discussed, together with analysis of the driving forces for proliferation of free trade areas (FTAs) and preferential trade arrangements(PTAs), as well as the different types of arrangements. The evolution of the key features of such economic cooperation agreements are outlined and the challenges and issues facing more extensive East Asian economic integration are reviewed. The paper concludes with recommendations for bringing about a viable, effective East Asian economic community that will benefit member countries and contribute positively to global trade.

Who Makes the Rules of Globalization?

In this paper I argue that profit-maximizing firms, even though they contribute to social welfare when they compete in the market, may not do so when they influence the political process. In particular, I suggest, through several examples from both the real world and from economic theory, that corporations have played a significant role in the formulation of the rules of the international trading system. They did this in the formation of the WTO, where they were responsible for the expansion to cover both intellectual property and services. And they do this in preferential trading arrangements such as the NAFTA, where they inserted the notorious Chapter 11 and specified rules of origin for automotive products. All of this is quite consistent with economic theory, including the literature on the political economy of trade policy. I also use a simple duopoly model to illustrate a domestic firm's interest in setting rules of origin. The corporate influence on rules need not be bad, but there is no reason why it should be good either, as these examples illustrate.

RULES OF THUMB FOR EVALUATING PREFERENTIAL TRADING ARRANGEMENTS: EVIDENCE FROM CGE ASSESSMENTS

Most interesting results on the welfare effects of regional arrangements are ambiguous at a theoretical level. Many questions only have quantitative answers that are specific to the particular model and policy considered. Thus, to determine the impact of prospective regional arrangements governments often rely on a quantitative evaluation. Usually at the request of a government involved, we have implemented a number of computable general equilibrium (CGE) models to inform policy-makers. 1 We summarize the main conclusions we draw from these studies, focusing on applications in the Americas. These conclusions are drawn from a number of model variants, including: perfect and imperfect competition; comparative static, comparative steady-state and dynamic; small open economy and multi-region; and representative consumer and multi-household. Despite the fact that we have found many of these results mentioned below repeatedly in our numerical work, and frequently undertaken piecemeal and systematic sensitivity analysis to identify the source of the results, we characterize these conclusions as rules of thumb. 2 We acknowledge that there are modeling variants or parameter specifications where these rules of thumb may not hold. Rule 1: Countries Excluded from a PTA Almost Always Lose Beginning in the mid 1990’s, countries in Latin America have entered into a “spaghetti bowl” of Preferential Trading Arrangements (PTAs). Considering each agreement on a pair-wise basis, excluded countries almost always lose from such arrangements. The obvious explanation is that the partner countries have preferred access to the markets of the included countries, which reduces demand for the exports of excluded countries into the markets of the PTA. In Table 1 we collate some results to illustrate a number of points. These calculations are based on the 1998 tariff of Chile of 11%. With our central elasticities

Hub and spoke integration and income convergence

This paper considers the impact of a hub and spoke preferential trading arrangement (PTA) on real income convergence. The theoretical model developed in this paper explains how the comparative advantage of the hub country relative to each spoke country can be linked to the distribution of the trading benefits. The experiments based on the model suggest that the establishment of a hub and spoke PTA leads to a convergence in real income between the hub and higher income spoke countries, while it causes a divergence between the former and lower income spoke countries. Moreover, it is found that PTAs which include spoke countries with very different income levels from each other maximize scope for trade creation and result in a large benefit to the hub country.

U.S.–Singapore Free Trade Agreement:: Implications for ASEAN

The signing of the U.S.-Singapore Free Trade Agreement (USSFTA) by the President of the United States and the Prime Minister of Singapore on 8 May 2003 is one of the culminations of Singapore's overall trade initiatives and economic strategy, which involves forging free trade agreements (FTAs) with other countries outside the ASEAN region. The first one was with New Zealand, which was later followed with Australia, while other FTAs are still under negotiations. This particular FTA, however, has caught much attention and has been hailed in the Singapore press as a historic and momentous event because it is the first FTA for the United States with an Asian country. On the other hand, for Singapore FTA means, apart from political considerations, much more in economic terms because of the huge market potential the United States can offer. With a population of 287.7 million and a per capita income of US$36,273, the United States can provide a strong economic stimulus which is badly needed during these times of sluggish regional growth and uncertainties. In fact, the United States has already been the largest export market and the largest source of foreign direct investments for Singapore. However, from the U.S. perspective, Singapore is not as important, as the bulk of U.S. trade is with its neighbouring developed countries such as Canada and Western Europe. This means, however, that there is a large scope for greater flow of exports from Singapore to the U.S. market. The recent FTA can certainly offer economic opportunities for trade-dependent Singapore, but what this means for the ASEAN countries as well as for ASEAN economic integration is not quite straightforward and more difficult to settle. Singapore's pursuit of extra-ASEAN FTAs has long been criticized by some fellow ASEAN members since the start of Singapore's bilateral free trade negotiations. Apart from the criticism that the other ASEAN countries were not adequately consulted by Singapore, these arrangements were seen by some as undermining ASEAN as a preferential trading arrangement. Specifically, it is claimed that these free trade arrangements could be providing Singapore's FTA partners with a back-door entry into the ASEAN Free Trade Area (AFTA). Before addressing these concerns raised by other ASEAN countries, there is a need to explore whether there are direct and indirect benefits that can be derived by other ASEAN countries from the newly signed USSFTA. It has been argued that there could be beneficial spillover effects of Singapore's extra-ASEAN FTAs in terms of local and foreign investments for the ASEAN region. This argument is quite convincing if we recognize that Singapore does not have an unlimited capacity to absorb all of the investments that can result from the USSFTA. It is logical to infer that U.S. investors in Singapore tend to engage in third country investment projects, using Singapore as a springboard for further investments in neighbouring countries. It has to be qualified, however, that the spillover effects can only be realized if conditions in the ASEAN countries are conducive for the investors. Further, under the Integrated Sourcing Initiative (ISI) of the Agreement, which allows Singapore to source out some of its information and communications technology (ICT) and medical components from outside Singapore and still qualifies Singapore for the preferential entry into the U.S. market, there is an incentive for local and foreign firms to locate some of their production facilities in the neighbouring ASEAN countries. The USSFTA will certainly provide greater access for Singapore's exports to the U.S. market as goods originating from Singapore are guaranteed duty-free access with no quantitative restrictions or prohibitions, provided the rules of origin are met. It has been estimated that there would be a tariff saving of US$200 million a year from this agreement, which only accounts for less than 1 per cent of Singapore's GDP and a processing fee saving of S$51 million annually. …

Grasping the Commercial Institutional Peace

While the commercial institutional peace research program provides empirical evidence that international institutions, especially preferential trade arrangements, help reduce the incidence of militarized inter-state conflict, it fails to delineate clearly how such institutions matter. Building from the logic that low opportunity costs for fighting, private information, and commitment problems constitute important causes of war, this article explores three interrelated causal mechanisms. First, the state leaders' increased expectations about future commerce create an incentive for these actors to consider peaceful bargains as an alternative to costly war. Second, security coordination under the umbrella of a commercial institution provides fuller information about state military capabilities, thus making inter-state bargaining for dispute resolution more efficient. Third, in bringing together high-level state leaders on a regular basis, commercial institutions may create the trust necessary to overcome commitment problems in inter-state bargaining. I explore how these mechanisms have operated within the Gulf Cooperation Council and the Economic Community of West African States.

Multilateral, Regional and Bilateral Trade‐Policy Options for the United States and Japan

We have used the Michigan Model of World Production and Trade to simulate the economic effects on the United States, Japan, and other major trading countries/regions of the Doha Round of WTO multilateral trade negotiations and a variety of regional/bilateral free trade agreements (FTAs) involving the United States and Japan. We estimate that an assumed reduction of post‐Uruguay Round tariffs and other barriers on agricultural and industrial products and services by 33 per cent in the Doha Round would increase world welfare by $686.4 billion, with gains of $164.0 billion for the United States, $132.6 billion for Japan, and significant gains for all other industrialised and developing countries/regions. If there were global free trade with all post‐Uruguay Round trade barriers completely removed, world welfare would increase by $2.1 trillion, with gains of $497.0 billion (5.5 per cent of GNP) for the United States and $401.9 billion (6.2 per cent of GNP) for Japan. Regional agreements such as an APEC FTA, an ASEAN Plus 3 FTA, and a Western Hemisphere FTA would increase global and member country welfare but much less so than the Doha multilateral trade round would. Separate bilateral FTAs involving Japan with Singapore, Mexico, Chile and Korea, and the United States with Chile, Singapore and Korea would have positive, though generally small, welfare effects on the partner countries, but potentially disruptive sectoral employment shifts in some countries. There would be trade diversion and detrimental welfare effects on some non‐member countries for both the regional and bilateral FTAs analysed. The welfare gains from multilateral trade liberalisation are therefore considerably greater than the gains from preferential trading arrangements and more uniformly positive for all countries.

Multilateral Determinants of Regionalism: The Effects of GATT/WTO on the Formation of Preferential Trading Arrangements

AbstractPreferential trading arrangements (PTAs) have spread widely over the past fifty years. During the same era, multilateral openness has grown to unprecedented heights, spurred by the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). If the cornerstone of the manifestly successful multilateral regime is nondiscrimination, why have its members increasingly resorted to preferential liberalization? We argue that developments at the heart of GATT/WTO encourage its members to form PTAs as devices to obtain bargaining leverage within the multilateral regime. Specifically, the growth in GATT/WTO membership, the periodic multilateral trade negotiation rounds, as well as participation and, especially, losses in formal GATT/WTO disputes, have led its members to seek entrance into PTAs. Conducting the first statistical tests on the subject, we find strong evidence in support of this argument.

Exploring alternative theories of economic regionalism: from trade to finance in Asian co-operation?

The financial crises of the late 1990s marked an intellectual watershed for the global economy, and also for regionalism as the Janus face of globalization. At the beginning of the twenty-first century, the theory and practice of regional cooperation and integration may evolve along different lines to how it was understood for most of the second half of the twentieth century. In East Asia, in particular, this will mean that the relationship between multilateralism and regionalism will change. The ‘East Asian’ region will become an increasingly important domain within which to explore enhanced protection against financial crises. What we might call ‘monetary regionalism’, sceptical western voices notwithstanding, is now firmly on the regional agenda in East Asia. Within conventional political economy, the theory and practice of monetary regionalism is not as easy to understand as traditional, trade-driven, regional integration. Thus one aim of this paper is to outline a theory of monetary regionalism and demonstrate the degree to which it represents a break with understandings of the regional project in East Asia prior to the late 1990s. From its start in 1989, APEC claimed to be a new type of regionalism. The promise was that APEC would promote open regionalism. APEC did not achieve this goal. Nor did it provide support to its Asian members during the financial crises of the late 1990s. At the same time, more traditional (what we might call Balassian) understandings of trade-driven regional integration are showing signs of decreasing importance. There is a growing appeal to trade co-operation, but this is notably an increasing interest in bilateral preferential trading arrangements. This leads to a complex picture of competing regional initiatives across the economic policy spectrum. The paper locates these initiatives in the wider context of the growing politico-economic dialogue between Southeast and Northeast Asia that has developed via the ASEAN+3 process since 1997.

EU Preferential Trade Arrangements and Developing Countries

T HE European Union, or the European Community (EC) as it continues to be called in the WTO parlance, has had the most extensive network of preferential trade areas (PTAs) of any WTO member. Prior to the current wave of PTAs, christened ‘New Regionalism’ by Bhagwati (1993), the EC was a participant to half of such arrangements. Thus, according to the WTO list current at the time of writing, a total of 32 PTAs, notified to GATT/WTO prior to 1990, were still in force. The EC was a participant to 16 of these arrangements. The New Regionalism saw the PTAs form with vengeance with their number rising to a staggering 172 by early 2002. The EC remained a major player in the game with membership in 33 additional arrangements. To be sure the EC PTAs have not been confined to developed countries. The EC has made a conscious effort to forge preferential trade arrangements with developing countries as well. Thus, it maintains special economic relations with its 12 developing Mediterranean neighbours, namely, Algeria, Cyprus, Egypt, Israel, Jordan, Lebanon, Malta, Morocco, Mauritania, Syria, Tunisia, Turkey and the Palestinian Authority. Recently, it has also forged FTAs with some far away trading partners, notably Chile and Mexico in Latin America and South Africa in Africa. The EC also maintains a complex web of one-way trade preference to all developing countries under the Generalised System of Preferences (GSP) and to a large number of African, Caribbean and Pacific (ACP) group of countries under the so-called Lome Convention, recently succeeded by the Cotonou Agreement. In this paper, I offer an overview and qualitative assessment of the EC preferential trade arrangements with developing countries. My main conclusion is

Preferential Trading Arrangements Between the European Union and South America: The Political Economy of Free Trade Zones in Practice

Preferential Trading Arrangements Between the European Union and South America: The Political Economy of Free Trade Zones in Practice

International Institutions and Interstate Trade: Reassessing the Effects of Alliances and Preferential Trading Arrangements

Recent studies have analyzed the impact of political-military alliances and preferential trading arrangements (PTAs) on international trade. Thus far, they have generated inconsistent results, in part because they have failed to distinguish adequately between alliances as formal institutions and uninstitutionalized alignments of common strategic interest. Consequently, this article seeks to reassess the effect of alliances and PTAs on interstate trade, controlling for alignment. Using an appropriately restricted data set, it arrives at a novel set of conclusions about their absolute and relative importance, finding that both alliances and PTAs have a positive, statistically significant, and substantively large impact on bilateral trade levels. In contrast to other recent studies, it finds that PTAs have a significantly greater positive influence on trade flows than do alliances when alignment is controlled for.

Movement of forest products within BIMP-EAGA sub-regions of ASEAN

Brunei Darussalam, Kalimantan and Sulawesi of Indonesia, Sabah and Sarawak of Malaysia, and the southern regions of the Philippines formed the East ASEAN Growth Area (BIMP-EAGA). It is the third sub-region in the Association of the Southeast Asian Nations (ASEAN) slated for development following SIJORI and IMT-GT. Blessed with a huge reserve of natural and human resources, as producers the BIMP-EAGA member countries constitute a mutually beneficial network for one another. The impressive exports and intra-regional trade of the sub-regions were manifested as a potential powerhouse for the Asian economic boom. In an effort to make ASEAN a Free Trade Area (AFTA), two institutional instruments of economic cooperation the ASEAN Preferential Trade Arrangement and the Common Effective Preferential Tariffs scheme have been developed. The production, consumption and trade of forest products revealed the extent of protectionism in the sub-regions. Existing barriers and logistic infrastructure supports the free flow of goods and services were identified and the industrial investment opportunities were matched to the level of contention and compromise among the members. This paper was prepared to present the status quo and to gain supports at the fifth BIMP-EAGA senior official and ministerial forestry meeting on 4 July, 1996 at Davao City, Philippines. Considering the region as one big production and distribution center, the barriers and necessary logistic supports were to be tackled by consensus. Without committed and concerted efforts of both the governments and the private sectors toward alleviating the impediments and enhancing free movement of resources, the realization of AFTA is just another economic myth!

An Economic Perspective on Russia's Accession to the WTO

Russia's application for accession to the WTO is currently in its final phases and may be completed by the end of 2003. In this context, this paper provides some background information on Russia's recent policy and structural reforms, the composition and geographic distribution of trade, tariff rates by commodity groups, and other aspects of trade and domestic policies at issue in the accession process. The accession procedure and the current status of the accession process are then discussed. Using a computable general equilibrium (CGE) modeling analysis of China's WTO accession as a prototype, the potential use of CGE modeling of Russian accession is considered as well as Russia's participation in the Doha Development Round and preferential trading arrangements. It is concluded that Russia may realize significant benefits from WTO accession and from the multilateral trade liberalization to be effected in the Doha Round.

On the size and number of preferential trading arrangements

This paper uses a multi-country political economy model to investigate the possibility of achieving global free trade through the expansion of Preferential Trading Arrangements (PTAs). It is shown that bloc expansion would result in global free trade if blocs have an open membership. However, that would not be the case if membership were selective: at some point, the members of the bloc would stop accepting new members and this would lead to the creation of a second bloc. The likelihood of such a second bloc would make the members of the first bloc choose a larger bloc size than they would have chosen if only one bloc was allowed to form.

Why Democracies Cooperate More: Electoral Control and International Trade Agreements

Over the past fifty years, barriers to international trade have decreased substantially. A key source of this decline in protectionism has been the proliferation of agreements among countries to liberalize commerce. In this article, we analyze the domestic political conditions under which states have concluded such agreements and, more generally, explore the factors affecting interstate economic cooperation. We argue that interstate cooperation on commercial issues depends heavily on the political regime types of participants: as states become more democratic, they are increasingly likely to conclude trade agreements. To test our claim, we examine whether the regime types of states have influenced their propensity to form and expand preferential trading arrangements (PTAs) during the period since World War II. We find that democratic countries are about twice as likely to form a PTA as autocratic countries, and that pairs of democracies are roughly four times as likely to do so as autocratic pairs. These results provide strong evidence that democracies are more commercially cooperative than less democratic countries.

Regional Trading Arrangements among SAARC Countries and India's Imports?†

In spite of political skirmishes between two major members of SAARC, economic cooperation among the member states has been under way since the conclusion of the South Asian Preferential Trading Arrangement on 2-4 May 1995 at the 8th SAARC Summit in Delhi. So far, SAARC member countries have concluded three rounds of preferential trading arrangements under the auspices of SAPTA. The basic object of this article is to examine whether SAPTA is successful in increasing India's intra-regional trade. With the help of the gravity model, it shows that the increase in India's imports from the member countries is miniscule, even though India has offered concessions for the largest number of items among all SAARC countries. This study examines the hollowness of SAPTA and suggests suitable measures to make SAPTA more effective. It strongly recommends duty-free trade among the SAARC members under the auspices of SAFTA at an early date.

Trade Blocs: Relevant for Africa?

African trade blocs are largely pursued for political reasons. The economic effects are dubious: a bloc may well reduce the welfare of its members, particularly if the rest of the world is the marginal supplier. Even if the bloc raises aggregate welfare it is likely to be problematic, leading to a divergence of income levels with the poorer members of the bloc losing. Far from promoting regional trust and cooperation the bloc can then cause tensions between the member countries. An important positive effect is improved product variety. This makes the adjustment of the production structure less painful than is commonly assumed. In Africa there has seldom been clarity on the objectives of preferential trading arrangements. This matters since many objectives (scale and competition effects, improved variety and regional cooperation on infrastructure projects) do not require the formation of a trade bloc. If a trade bloc is set up for political reasons (e.g. to improve security) then it is desirable that it unilaterally lowers external tariffs so as to reduce trade diversion and income divergence.

Economic Development in the Newly Independent States: The Case for Regionalism

The Newly Independent States of the Caucasus and Central Asia face a formidable set of obstacles to economic development. The strategies pursued in other developing countries ‐ resource‐based, import substitution, export promotion, and neoliberalism ‐ do not provide satisfactory roadmaps for these states. This article argues that a regional development strategy constitutes the best hope for the NIS. While most economists look unfavorably on preferential trade arrangements, a carefully formulated regional strategy — which would combine a deepening of existing regional trade agreements, convergence towards the World Trade Organisation's non‐discriminatory norms, and support of trade financing reforms by international development agencies — could unlock the NIS's substantial potential for intra‐regional trade and enhance the region's appeal to Western investors. However, execution of such a strategy presupposes resolution of the political conflicts (inter‐ and intra‐state) that currently impede regional co‐o...