ARE PREFERENTIAL TRADE AGREEMENTS STUMBLING BLOCKS?

The number of preferential trade agreements (PTAs) has skyrocketed over the past 20 years. In addition to reducing barriers at the border, modern PTAs remove many behind-the-border barriers by regulating foreign direct investment (FDI), liberalizing services, and protecting intellectual property rights. This article surveys the literature explaining the formation of PTAs and their consequences. Regarding the formation of PTAs, studies have gradually moved from exploring the macro-foundation of preferential liberalization to focusing on the micro-foundation of PTAs, relying on industry- and firm-level data. Regarding the effect of PTAs, there is robust evidence that PTAs substantively increase trade flows and FDI and are associated with economic reforms in developing countries, though the general welfare effect of preferential liberalization remains largely unexplored. I make some concrete suggestions on avenues toward which to push the research on PTAs. In particular, I argue that scholars interested in PTAs would benefit from engaging in debate about the distributional consequences of trade liberalization, which not only informs much of the current academic and policy research but also features in political debates taking place in democratic polities.

The most remarkable evolution in the field of international investment law is undoubtedly the massive proliferation of Bilateral Investment Treaties (BITs) and Preferential Trade Agreements (PTAs), either in the form of Free Trade Agreements (FTAs) of Custom Unions (CUs). PTAs increasingly, as will be pointed out, contain provisions on the liberalization and/or protection of foreign investment, and may then be referred to as Preferential Trade and Investment Agreements (PTIAs). PTAs differ substantially in terms of the extent to which they cover investment. Agreements in the area of trade and investment either contain explicit provisions on the protection, and possibly the liberalization of foreign investment, or are aimed essentially at the regulation of trade in services and/or goods, in which case the provisions on investment are usually less extensive than in the former or even completely absent. BITs and modern PTAs which include investment protection (and liberalization) provisions, which may then be categorized as PTIAs, follow the first approach, and thus contain extensive provisions on both the liberalization and the protection of foreign investment (PTIAs), while the majority of the traditional PTAs follow the second approach, containing only a framework or framework provisions committing to further liberalization, protection and promotion of investment. This contribution aims to analyze the interrelationship between the network of bilateral investment treaties and PTIAs with respect to the protection of foreign investment. In doing so, this contribution will examine the differences in the content and rationale of PTIAs as compared to BITs, and in particular how substantive investment protection and investment dispute settlement are dealt with in PTIAs and BITs. Finally, this contribution will address whether conflicts between PTIAs and BITs are possible, and if so, how these conflicts may be addressed.

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.

The increasing number of Preferential Trade Agreements (PTAs) gives rise to tensions with the multilateral trading system because they collide with the most important principle of the World Trade Organisation (WTO) legal order: non-discrimination. WTO law provides for rules governing the formation of PTAs. The content of rules is far from being undisputed and their application is subject to institutional constraints. The author analyses the institutions charged with administering the law governing the WTO consistency of PTAs and compare their advantages and drawbacks. On this basis the chapter explains why the WTO 'regional exceptions' remain largely unenforced. To that end the chapter focuses on the 'costs' of participating in the processes of legality scrutiny. The simultaneous shift towards bilateralism together with the revision of the General System of Preferences (GSP) bears the potential to increase the stakes of affected countries and thereby giving PTA scrutiny in the WTO new momentum. Keywords: General System of Preferences (GSP); institutional constraints; Preferential Trade Agreements (PTAs); PTA scrutiny; regional exceptions; World Trade Organisation (WTO)

Multilateralism and the endogenous formation of preferential trade agreements

European Union and ACP-Countries : are preferential trade agreements to be taken for granted ? Exports of developing countries may be differently stimulated. First, devel-oping countries' exports may benefit from gradual cuts in custom-duties negociated under the auspices of the GATT. Second, developing countries' exports may be favoured by preferential trade agreements like those granted by the European Union towards the ACPs. The theoretical issues of the effects of preferential trade agreements rely on the Viner's analysis of trade flows creation and diversion. The Viner's analysis is however limited to the welfare costs and benefits of the donor. Moreover, those kinds of cost-benefit analyses are by definition static. In this article, we propose a theoretical and econometrical analysis of the Yaounde and Lomé conventions effects on the ACPs' manufactured exports. From a theoretical point of view, the exports of tnanufactured goods depend on the income of import buyers, on sectorial capacity and competitiveness indicators. The two latter variables are either unobservable or unavailable on a panel of developing countries. We substitute the sectorial capacity indicator by a domestic income indicator, making further additional econometric assumptions that allow us to estimate a log linear function of the export rates of ACP's. We secondly substitute the sectorial by a global competitiveness indicator : the Real Effective Exchange Rate (REER). The use of the latter is only allowed if we control for labor and human capital endowments. The finally estimated export rate estimated function depends – positively on the income of OECD countries, human capital endowments and – negatively on the REER and the labor force. Preferential trade agreements are taken into account by binary dummies denoting ACP membership. We check separately the effects of the Conventions on the manufactured goods exports of ACPs to the European countries and to the world. Explanatory variables have the predicted effect. ACP-countries do perform better than other developing countries when they export to European countries. But the latter positive effect is more prevalent under the early conventions. Moreover, ACP-countries do not perform significantly better than other developing countries when they export towards European and non-European countries. We notice however that the Yaoundé convention granting reciprocal trade advantages has solely favoured the ACPs' exports. Some pieces of explanation are proposed. Trade agreements may have postponed economic reforms in ACP-countries, that appeared to be necessary in the face of emerging exporting countries in the South-Asia and South America. Trade agreements appear to have allowed for the durability of distorsions. In last ive diagnose more for a trade flows diversion instead of a stimulation that may question the relevance of trade agreements.

The EU is a major participant in the world sugar market, being one of the top producers, importers and exporters in the world. The reform of the EU sugar regime will affect not only the EU member states and candidates, but also countries that are associated with the EU through the preferential, regional and multilateral trade agreements. For several decades, the EU has supported and protected the EU sugar sector. Sugar from developing countries will not be able to enter the EU sugar market without preferential trade agreements. In the EU sugar regime, the unique features of the trade concessions are that sugar under preferential import quotas can enter the EU market duty-free and the price paid for sugar equals to the high EU price for sugar. This paper attempts to analyse the complex hierarchy of trade arrangements between the EU and specific groups of countries. It compares the different trade agreements – including those achieved under the WTO – and explores the impact of these upon both the EU and the other countries involved.

This 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.

<p>In a three country model with endogenous tariffs, this paper evaluates and contrasts the welfare effects of free trade agreements (FTAs)and customs unions (CUs) — the two most commonly occurring pref-erential trade agreements (PTAs). We show that if the external tariffof a PTA is not too high, it benefits both members and non-members.We also highlight the implications of a key (but commonly ignored)distinction between the two types of PTAs: while an FTA member canform an another (independent) FTA with an existing non-member, aCU member cannot. Under a pair of independent bilateral FTAs,the common member’s welfare is higher than that under free trade.Furthermore, if the common member is relatively efficient comparedto the other two countries, such a ‘hub and spoke’ pattern of FTAscan yield higher global welfare than free trade. By contrast, such anoutcome is never possible under a CU. </p>

In this chapter, we examine three significant areas in which public international law interacts with Preferential Trade Agreements (PTAs): first, how various forms of public international law affect the interpretation of PTA provisions; second, the related issue of how PTAs contribute to customary international law and the extent to which customary international law applies to PTAs; and finally, how to resolve conflicts between PTAs and other treaties. This final section examines both substantive conflicts and problems arising from overlapping jurisdictions of PTA tribunals and other international tribunals. This survey illustrates the complex web of links between PTAs and public international law and the readiness of PTA tribunals, particularly under the North American Free Trade Agreement (NAFTA), to draw on other sources of international law in interpreting PTA provisions and otherwise determining PTA disputes. At the same time, no clear answers emerge about how to best deal with the likelihood of ever increasing conflicts between PTAs and other treaties.

Export diversification is one of the important pillars of the trade policy of developing countries. Pakistan has embarked on a geographical export diversification policy by signing preferential and free trade agreements. The gravity model is used to check whether Pakistan’s policy of preferential trade has a positive impact on its export growth. The estimation results indicate an insignificant relationship between preferential trade and export growth, and therefore implies that the agreement may have international political significance but not the economic. DOI : 10.7176/JESD/10-24-15 Publication date: December 31 st 2019

Although many believe preferential trade agreements (PTAs) are incompatible with the World Trade Organization (WTO), we lack empirical evidence on this topic. In this article, we examine international trade agreements—the source of trade law—and employ two types of text analysis to determine the presence of the WTO in PTAs. Our systematic comparisons of post-Uruguay Round PTAs and relevant WTO agreements reveal a strong, two-part presence of the WTO in PTAs. Nearly all recent PTAs reference the WTO explicitly, often dozens of times across multiple chapters. Likewise, in many of these same PTAs we find that substantial portions of treaty language—sometime the majority of a chapter—is copied verbatim from a WTO agreement. Moreover, multiple regression analyses reveal that larger countries and those most active in preferential agreement making are actually most likely to include a strong WTO presence in their PTAs. Additionally, the presence of the WTO in PTAs has increased over time. Our study contributes novel and robust empirical evidence to suggest that the ties between the WTO and PTAs are more solid than is realized.

This research work evaluates the proposition that trade liberalisation is instrumental in pulling FDI inflows to emerging economies. Using panel random effects model on annual data of 6 emerging countries including Brazil, China, India, Mexico, Russian Federation and Turkey from 1996 to 2014, it is found that liberalisation of trade and investment regime measured by trade agreements significantly affect the multinationals' overseas investment decision. Market size, development level and human capital, considered essential by foreign investors, also have a significant positive effect on incoming FDI. Preferential and regional trade agreements increase the openness of a country's economic and investment borders. They reduce duties, taxes, tariffs as well as the inflexibility in regime policies vis-a-vis foreign firm operations. This usually ensue trade and investment liberalisation and consequentially has a positive impact on FDI inflows to these nations. Among trade agreements only the preferential trade agreement is found to be significantly positive. It is plausible given the fact that except for Mexico all other countries selected are far away from the major FDI source nations

It is generally presumed that World Trade Organization (WTO) members display a preference for dispute settlement under WTO rules over those provided for in preferential trade agreements (PTAs). This assumption is driven by observations relating to the large number of PTAs, the low number of PTA cases and the large number of WTO cases, including between PTA partners. These observations are challenged by adopting a methodology that has so far seen relatively limited use in the study of international law network analysis. This article finds, first, the network of connections among WTO members formed by PTAs is far less dense than appears to have been assumed. Second, while almost half of all WTO members have participated in WTO proceedings at least once, the vast majority of bilateral relations among WTO members have never been subject to WTO dispute settlement. This puts the perceived idleness of PTA dispute settlement into perspective. Lastly, the share of WTO cases that could have been settled under PTA procedures is far lower than commonly believed. This low share shows that there is no widespread predilection for the WTO, as commonly argued, but, more often than not, a genuine absence of choice. Ultimately, as the PTA network is unable to act as a substitute, WTO dispute settlement continues to hold a central place in the rules-based global trading system.

This paper takes a first look at new data on the content of Preferential Trade Agreements (PTAs). The data contain detailed information on the eighteen policy areas most frequently covered in PTAs, focusing on the stated objectives, substantive commitments, and other aspects such as transparency, procedures and enforcement. A number of new stylized facts emerge: (i) PTAs have reduced trade-weighted average tariff rates to less than 5 percent for more than two-thirds of countries; (ii) the number of commitments in PTAs has increased over time, particularly since the 2000s and in areas aiming at facilitating flows of services, goods and capital; (iii) deepening commitments have been accompanied by an increase in regulatory requirements, namely on enforcement; (iv) developing countries tend to have fewer commitments in PTAs, with larger gaps in areas such as labor and environment; (v) PTAs are more similar within blocs, but similarity can be significant even across blocs. The paper also discusses the challenges of quantification of PTA “depth” and its effects and proposes a research agenda for future work on trade agreements.