Preferential Trading Arrangements Research Articles

Contribution of COMESA in the Fight Against Poverty in Zambia Through Trade Facilitation

Background: This study was undertaken due to high levels of poverty in the Common Market for Eastern and Southern Africa (COMESA) Member States. The study endeavored to explore the Contribution of COMESA in the fight against poverty in Zambia through trade facilitation. The study employed qualitative approach with an exploratory research design and critical case sampling to choose 13 key respondents to explore the contribution of COMESA in the fight against poverty in Zambia through trade facilitation. Primary data was analysed from 13 key respondents selected purposively using an interview guide to support secondary data. Data was analysed using thematic and content analysis. According to the World Bank (2017), trade facilitation contains provisions for expediting the movement, release, clearance of goods, goods in-transit, simplification, standardisation and harmonisation of procedures and associated information flows required to move goods from the seller to the buyer for payment. Zambia implemented COMESA’s simplified trade regime (COMESA-STR) for small cross- border traders. The Simplified Trade Regime (STR) basically aimed to formalise informal cross-border trade (ICBT) by putting in place instruments and mechanisms tailored to the trading requirements of small-scale traders that were decentralised to border areas where informal trade was rampant with the view to facilitate ease of access by small traders. The Simplified Trade Regime (STR) made possible for the small-scale cross-border traders to benefit from the COMESA’s preferential trading arrangement with the reduction of tariffs on selected goods. The concept One Stop Border Posts (OSBPs) was also implemented in Zambia and other related trade facilitation measures to support businesses.

Formation of climate coalitions and preferential free trade: the case for participation linkage

AbstractWe study the endogenous formation of climate coalitions linked to a preferential free trade arrangement. In a multi-stage, micro founded strategic trade and participation game, coalition and fringe countries dispose of a discriminatory tariff on dirty imports as well as emission permits imposed on domestic producers. Permits are traded on a common permit market inside the coalition and on local markets outside, respectively. We provide an analytical solution for the general equilibrium and the policy game, in the three country case, while the participation game is solved by Monte Carlo simulation. Moreover, conditional probabilities are computed for the transition to coalitions of various sizes induced by free trade. Under various regimes analyzed, we find that preferential free trade can create strong incentives for building effective climate coalitions in terms of depth and breadth. This result even holds if fringe countries are given the option of trade cooperation as a retaliation devise and is driven by a favorable shift in the coalition’s terms of trade. As a policy implication, negotiations on international climate treaties and free trade arrangements should be interlinked.

한국의 최빈개도국 대상 특혜관세제도의 교역효과 분석

We empirically analyze the trade effect of the preferential trade arrangement (PTA) of Korea for least developed countries (LDCs). In 2000, Korea launched PTA that allows duty-free and quota-free market (DFQF) access to LDCs. Korea has granted DFQF access to LDCs and extended preferences for LDCs since 2012 . However, imports from LDCs account for less than 1% of Korea’s total imports. We incorporate Silva and Tenreyro(2006)’s PPML method in the traditional gravity model for unilateral preferential schemes as in Gil-Pareja, et al.(2014) to address “zeros” in trade data and the endogeneity issues between trade and trade agreements. An empirical study of Korean 2000-2020 disaggregated import data shows that DFQF failed to increase LDCs’ exports. Korea may need to reform DFQF and design mutually beneficial trade agreements for LDCs.

How Does Economic Integration Affect Progress along the Investment Development Path? A Case Study of EU Member vs. Non-Member Countries from Eastern Europe

1. Adams, R., Philippa D., Jyothi G. & McGuire, G. (2003) The trade and investment effects of preferential trading arrangements – old and new evidence. Working Paper. Productivity Commission, Canberra. Google Scholar

Will free trade agreement between India and China reduce India’s trade deficit?

Trade between India and China has been rising exponentially with a widening trade deficit for India, which has raised alarm by businesses, and some Indian parliamentarians have started accusing China of unfair trade practices. Nevertheless, both countries intend to negotiate for free trade arrangements between them based on complementarity. This study examines how much reduction in trade deficit due to different preferential trading arrangements is feasible under hypothetical full export potential scenarios using a stochastic frontier gravity model. The empirical analysis shows that India’s potential gain is high when the influence of India’s existing ‘behind the border’ constraints is eliminated.

Globalization of Agriculture and Atomization of Farming: Small Farms Crisis in Asia

Agriculture in Asia is being pushed into a new policy regime that uncritically promotes free trade and laissez faire policies. The World Trade Organization agreement on agriculture, regional preferential trading arrangements (PTAs) and neoliberal policies pursued by the individual nations are the central features of the new regime. The new regime is built disregarding the existing knowledge on agricultural commodities that they are prone to market failures, which are unlikely to be corrected if left unregulated. In this article, we portray the new regime in terms of two defining processes that are at work, viz. globalization of agriculture and atomization of farming. Globalization happens on account of integration of the agricultural markets at provincial, national and global levels. Atomization of farming occurs due to fragmentation of holdings on the one hand and weakening of ‘collective action’ on the other. In the farming end of the value chains, millions of small farms, who lack any market power whatsoever, compete among themselves. The post-harvesting nodes have fewer and larger firms. As we have argued at length, the large firms inhabiting the postharvest nodes of the commodity chains are capable of extracting profit out of volatilities in the market. The non-farm nodes are characterized by economies of scale and possible accumulation of market power. Such profiteering will be at the expense of the atomized farms as well as the final consumers of the commodities. The policy has become suddenly very active in abetting competition upstream and limiting it downstream. The regime legitimizes entry barriers downstream and intervenes directly to promote entry, augment supply/competition upstream. The policymakers do not want to intervene in the market to save producers from commodity problems; instead favour players profiteering out of such possible instances of market failure.

From Preferential Trade Arrangements to Free Trade Agreements: One of the Downturns of Cooperation in International Relations?

Since the signing of the General Agreement on Tariffs and Trade (GATT) and the creation of the World Trade Organization (WTO), preferential trade agreements (PTAs) have been an interesting tool to promote international cooperation through the granting of non-reciprocal and/or unilateral tariff preferences by developed countries to developing countries. These international agreements have tended to generate critical trade dependencies for the receiving countries. Due to the circumstances of world trade and due to the lack of interest of the grantors to maintain this type of tariff preference, these developing countries are forced to renegotiate their PTAs into to free trade agreements (FTAs). To demonstrate this, we conducted a qualitative analysis to characterize the behavior of PTAs and their impact on the configuration of FTAs and to obtain indicators and trends. The results suggested a predominance of FTAs and a decline in PTAs. This was done to maintain access to the markets within those granting countries, which also became the main trading partners of these PTA recipient countries.

ASEAN or plus alpha? The effectiveness of regional economic cooperation

This study examines the effectiveness of regional trading blocs in Southeast Asia utilizing the gravity model of international trade. The primary objective of this study is to determine which trading bloc – ASEAN, ASEAN3 or ASEAN6 – is most effective in creating preferential trading arrangements. We examine a comprehensive panel data for a sample of ASEAN's 10-member state countries spanning bilateral trade with 29 major trading partners over 17 years. The results reveal that the export volume of ASEAN member countries to AEAN6 member countries is 2.5 to 4 times higher than to non-member countries, thus indicating that ASEAN6 is the optimal group. In the latter portions of this paper, this paper provides policy implications to create effective and efficient trading arrangements.

Building Climate Coalitions on Preferential Free Trade Agreements

In this paper we discuss the endogenous formation of climate coalitions in an issue-linkage regime. In particular, we propose a preferential free trade agreement on which a climate coalition should be built. The basic idea is that the gains of free trade can provide strong incentives for countries to join the coalition. As a framework, a multi-stage strategic trade model is employed in which each country may set an emission cap being effective on a permit market. In addition, a discriminatory import tariff may be imposed on dirty goods. However, at the heart of our approach is a preferential free trade arrangement among the members of a climate coalition leading to a favourable shift in the terms of trade. As a main result, trade liberalisation is found as an institution highly effective in building climate coalitions. In particular, the parametrical simulation of the model shows that participation in joint emission reduction is higher, consumption patterns are more environmentally friendly, and coalitional welfare is much more improved than in case of a single-issue environmental agreement.

The AGOA as stepping stone for USA–Africa free trade agreements

PurposeThe purpose of this paper is to show how the pattern of trade relations between the USA and African countries is gradually shifting toward reciprocity. It therefore demonstrates that the African Growth and Opportunity Act (AGOA) was conceived to be a building block toward future bilateral trade agreements.Design/methodology/approachThis paper adopts a historical approach to the USA’s policy toward Africa in general and in trade matters in particular. It critically reviews the chronology of US involvement in the continent.FindingsAlthough it was designed as a preferential trade arrangement, AGOA was intended to evolve into reciprocal trade agreements. This is what the USA started doing even prior to the entry into force of the AGOA, by entering into Trade and Investment Framework Agreements with individual countries or blocs. It also transpires that the deployment comes as a response to the European Union which is already engaged in the redefinition of its own trade relations with Africa since 2004.Originality/valueThe paper is important in many respects. Not only it is a study of the US practice as preference-granting country, but it is also interested in the typology of trade agreements concluded by the USA in other regions of the world. This is important to indicate and analyze the types of provisions African countries should be expected to face when the time of entering into reciprocal binding trade treaties arrives.

The Concept of ‘Good Faith’ in the Particular Case of Preferential Arrangements

Under EU preferential trade arrangements reduced or zero rates of customs duties apply to goods originating in certain countries. However, a customs debt may be incurred when the certificate of origin of the goods is deemed to be incorrect. In such cases, import duties are collected by way of post-clearance recovery since imports should not have benefited initially from preferential treatment, whereas importers may plead good faith to claim the repayment or remission of customs duties. The plea of good faith is based on the grounds of an error made by the competent authorities themselves and on the fact that the debtor was not aware nor should be aware of the irregularities committed in the country of origin. Two issues arise: (1) to what extent are EU importers required to be aware of the irregularities committed in the countries of origin; and (2) what is the impact that a notice to importers published by the European Commission may have on the good faith of importers. The first issue depends basically on the scope of the principle of good faith, so it is necessary to take into account the degree of diligence (duty of care) that should be required to EU importers. The second issue deals with the minimum level of legal certainty that may be required by notices to importers which have a direct impact on the good faith and may therefore be decisive as to determine whether importers should have been aware of irregularities committed in the country of origin.

On the relationship between the breadth of preferential trading arrangements and trade flows

AbstractThis paper uses matching econometrics to extend the literature investigating the impact of preferential trading arrangements (PTAs) on goods trade flows. Heterogeneity in PTAs is accounted for through a “provision count index” derived from data provided in a recent World Bank study. PTA formation now involves two separate, sequential decisions—first, whether two trading partners should form a PTA, and second, if they do, how broad that agreement should be. We find our explanatory variables are significant for both decisions, but often have opposing effects on each. Using matched PTA and non‐PTA groups of country pairs, we estimate a dose–response function which indicates that arrangements with few provisions and arrangements with many provisions do not appear to have a significant impact on goods trade flows between their members. PTAs in an intermediate range are shown to have a significant positive effect. We then relate these outcomes to the actual content of the PTAs using the concept of “provision intensity.”

The political economy of preferential trade arrangements: The case of Japan

ABSTRACTSupport for open trade regimes varies. We analyze Japanese survey data on individuals' preferences for TPP, unilateral import liberalization, and East Asian economic integration, and compare factors influencing policy preferences. First, despite the massive negative campaigns against TPP, 42.8% of individuals support Japan’s participation in TPP, vs. 21.1% against. Second, economic factors do matter for an individual in determining his/her policy preference over TPP. Third, noneconomic factors such as gender, age, access to accurate information, and attachment to hometown also feature as determinants. Fourth, although preferences over TPP and other policy options are positively correlated, some factors decrease TPP support but do not undermine support for two other less-politicized policy options: lack of access to accurate information and some industry and regional TPP-specific factors. Criticism impacts negatively on FTA policy preferences. Finally, we discuss economic policy implications for relationships between China, Japan, and Korea.Abbreviations: FTA: Free trade agreement; JA: Japan agricultural cooperative; TPP: Trans-Pacific partnership agreement.

The Doha Round Negotiations and EU's Common Agricultural Policy

The Doha Round, launched in 2001, is the longest going (still unfinished) Round of negotiations in the history of the World Trade Organization and its predecessor GATT. The main roadblock to Doha’s successful completion is disagreement on agricultural issues – the Special Safeguard Mechanism, market access and domestic support. This paper analyzes the key factors underpinning the positions of developing and developed countries, with a focus on the role of the European Union’s Common Agricultural Policy (CAP) and some of EU’s preferential trade arrangements.

An Appeal for Targeted Regulatory Protection of Human Rights in the European Union’s External Trade Relations in Light of Front Polisario

Shrimp, cotton, cocoa. The US Department of Labor’s list of goods believed to be produced by child or forced labour is long. It also acts as a chilling reminder that everyday products on the European market may have been produced under conditions representing severe human rights violations. In the United States, section 307 of the Tariff Act 1930 acts as a tool for customs to block the importation of certain goods produced under proved child or forced labour conditions. No equivalent exists in the European Union (EU). Yet, in light of the currently-pending appeal case of Front Polisario, the General Court and Advocate General Wathelet could have opened the door to requiring the Council of the EU to assess and ensure that the production of goods for export which enter the Union under a preferential trade arrangement comply with certain fundamental human rights. This note discusses the viability of that obligation and proposes making fundamental human rights indirectly enforceable abroad through a European equivalent of section 307.

Multilateralism and Regionalism in the South Pacific: World Trade Organization and Regional Fora as Complementary Institutions for Trade Facilitation

AbstractAs World Trade Organization (WTO) membership becomes almost universal, the Pacific island countries stand out as the largest group of outsiders. As the islands seek to replace reliance on preferential trading arrangements by competitive exports, market access and trade facilitation have become key policy concerns. In this context, WTO membership and regional or bilateral trade agreements are complementary institutions for increasing the potential success of new exports. The WTO sets out agreed principles for market access, and membership includes a dispute resolution process that provides redress against unjustified obstacles to exports, whilst trade facilitation in the sense of overcoming particular cost‐raising obstacles to trade is better delivered by regional and bilateral agreements. The argument is supported by evidence from Pacific and other small island economies.

Deeper Integration or Wider Integration? : the case of Gulf Cooperation Council

We empirically evaluate whether fostering trade partnership within the region is a better economic course of action for the Gulf Cooperation Council than engaging into preferential trade arrangements with well-established trade blocs outside the region. We use the 8.1 version of Global Trade Analysis Project to analyze four scenarios representing various Gulf Cooperation Council trade integration paths, taking into consideration the issue of non-Tariff Barriers and trade facilitation measures. Results indicate that the Gulf Cooperation Council gain from lifting tariffs and non-tariff barriers on trade with the Greater Arab Free Trade Area subgroups and with the European Union is limited unless such barrier lifting is complemented with trade facilitation measures. With trade facilitation, the full completion of Greater Arab Free Trade Area scenario yields the highest welfare gain for the Gulf Cooperation Council, while the Gulf Cooperation Council-European Union Free Trade Agreement scenario yields positive but smaller gain. The small gain with Gulf Cooperation Council-European Union scenario is explained by the negative terms of trade effects following trade liberalization. These results underscore the importance of deepening Greater Arab Free Trade Area’s scope through introduction of trade facilitation measures as well as measures beyond merchandize trade liberalization.

Does Institutional Design Matter? A Study of Trade Effectiveness and PTA Flexibility/Rigidity

This article examines the trade effect of flexibility design features within preferential trading arrangements (PTAs). Using a gravity model of bilateral trade that incorporates multilateral trade resistance, we report three main results. First, unconstrained escape provisions undermine the effectiveness of PTAs when it comes to increasing trade. Second, adding some restrictions to these escape provisions more than offsets the negative effect of unconstrained escape, leading to more effective PTAs than those without escape options. Third, adding more restrictions beyond a certain point serves only to make PTAs less effective. Thus, both too much institutional flexibility and too much institutional rigidity reduces the ability of PTAs to promote trade. However, fitting these results to the descriptive data makes it appear that most PTAs would be even more trade effective if they included greater restrictions on the use of their escape provisions. Consequently, it appears that policymakers generally choose fewer escape restrictions than would be optimal in terms of trade performance.

Mega External Preferential Trade Agreements and Their Impacts on Indian Economy

This study examines the impacts on India of three mega external preferential trading agreements (PTAs) from which the country is excluded using the Global Trade Analysis Project (GTAP) model combined with POVCAL poverty analysis tool. The simulation results show that each of these PTAs cause considerable trade diversion. However, the impacts on India’s trade flows, domestic output, returns to factors, aggregate welfare, inequality and poverty levels are rather small. In contrast, multilateral trade liberalization has significantly large and favourable impacts on all these variables. In particular, welfare improves by 1.7 per cent of GDP, inequality falls by over half percentage point and poverty head count lowers by 12.3 per cent over base levels under a multilateral free trade scenario. These results suggest that the country should continue with its efforts for achieving a multilateral trade agreement. At the same time, the country should hedge against the possibility that a global trade agreement does not materialize. One way to protect the country’s interest is to aggressively pursue preferential trading arrangements in parallel with key members of these three mega PTAs. This is likely to ensure that the country does not lose market share due to preference erosion.

The Rise of China and Regional Integration in East Asia

Over the past decades, East Asia has achieved one of the most profound economic transformations in recorded history, and has become the most dynamic economic region and one of the most integrated areas in the world. However, regional and economic integration in East Asia is a relatively new phenomenon and cooperation is lightly institutionalized (ADB, 2008). Largely reflecting the diversity of the economies, the East Asian regionalism follows a markedly different pattern from that in Europe and other regions. In the absence of a formal institutional framework, the regional integration in East Asia has been driven by market forces and by the development of increasingly sophisticated production sharing and intra‐regional network trade, in which China's rapid growth has been instrumental. It is the international firms that are creating linkages across borders in their search for profitable opportunities through trade, foreign direct investment (FDI), and other arrangements in accordance with changes in comparative advantage, industrial upgrading, and unilateral liberalization of goods and capital markets in the region (Dobson, 1997; Zhang, 2003; De Grauwe and Zhang, 2012). Policies such as preferential trading arrangements have traditionally not played much of a role in the integration of the region.