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The main theme of the World Trade Report 2011 is “new era preferential
trade agreements”.(1)
Interest in negotiating and concluding preferential trade agreements
(PTAs) appears not to have waned despite the global economic crisis. The
current impasse in global trade negotiations may provide fodder for more
agreements to be reached in the future.
With the exception of Mongolia, all WTO members belong to at least one
PTA. There is also a lot of diversity in the average number of
agreements across regions and the groups of developing and developed
countries respectively. Asian countries only recently have become active
in signing PTAs. Developed countries continue to participate in more
PTAs on average than developing countries. Among developing economies,
countries such as Chile, Mexico and Singapore have concluded many PTAs.
Many of the existing agreements in force are not strictly “regional”,
i.e. include at least one country from another geographical area. This
trend is even more pronounced for those PTAs that are currently being
negotiated or have just recently been signed (but are not yet in force).
Despite the vast literature in both economic and political economy
analysis of PTAs, some explanations for PTAs may not be getting enough
attention and deserve to be examined more closely. First, the
international fragmentation of production, already present in the early
1960s, has expanded significantly. Data suggest that in the last two
decades both offshoring in goods and services have grown at a faster
pace than trade in final goods. In particular, East Asia and the
economic transformation of Eastern Europe appear to have significantly
intensified these phenomena. This unprecedented expansion of global
trade and investment flows has been accompanied by a regionalization of
these flows which might be linked to the role played by production
sharing networks, most of which are regional.
Second, a large number of new PTAs are different from last century's
preferential arrangements. While last century's PTAs may have been about
preferential tariffs, new era PTAs are increasingly about a range of
issues - property rights, establishment rights, repatriation of profits,
temporary movement of key personnel, infrastructure services, trade
facilitation, rules of origin, and dispute settlement mechanism
accessible to private agents - that are crucial to the success of
production sharing networks, but which may only be partially present in
the WTO.
Third, the demand for “governance” on these economic issues means that
the implication posed by new era PTAs to the multilateral trading system
is in no way captured by the old stumbling block vs. building block
approach, which was essentially about whether preferential tariff
liberalization would eventually lead to multilateral liberalization.
The aim of the 2011 World Trade Report is to review the literature
related with these new themes. In addition, it will take the further
step of exploring which PTA rules are consistent with a new era
interpretation of these agreements, i.e. whether they are consistent
with the production sharing hypothesis. Finally, possible ways in which
the WTO can best ensure coherence between PTAs and the multilateral
trading system in a new era of regionalism will be identified.
A brief outline
The report will be divided into four main parts.
Historical analysis and current trends
This section will provide both a historical analysis of PTAs and a
description of the current landscape of PTAs. This section will also
seek to determine to what extent certain attributes of PTAs may be
correlated with one another. Finally, apart from documenting the huge
increase in PTA activity in recent years, it will provide for the first
time a precise estimate of how much trade in PTAs receives preferential
treatment.
Going beyond the standard analysis
This section will survey the causes and consequences of PTAs with a
focus on both economic and political explanations. An important
distinction is also made between shallow and deep integration. Building
on the stylized facts about trade, investment and production patterns,
and the observed pattern of PTA creation, this section will raise the
question of whether one needs to go beyond the standard or traditional
theories involving trade creation and trade diversion to explain PTAs.
The intention is to suggest that traditional theories do not fully
explain the emerging pattern of PTAs and that the relationship between
trade agreements and production networks (i.e. the provision of
“production network specific” public goods) should be considered when
analyzing this new era of PTAs.
The contents of PTAs and new patterns of production
This section will attempt to validate the hypothesis that more and more
PTAs are about production sharing by examining the contents of the
agreements, particularly those relating to services, investments,
competition policy, intellectual property, dispute resolution, etc.,
that are important to today's firms engaged in international commerce.
The available evidence and research point to new explanations or
motivations for preferential trade agreements. Production sharing
arrangements require stronger protection for investors and for
intellectual property, better infrastructural services to lower the cost
of trading or expedite shipments, and safeguards against
anti-competitive behaviour.
Clearly, not all PTAs will be explained by production sharing, and for
these PTAs tariff preferences as well as non-economic motives are likely
to be more important. Therefore, this section also examines market
access in both goods and services and other PTA provisions such as rules
of origin and trade remedies which may be relevant to that subset of
PTAs where the traditional tariff preference story is the driving
motivation.
Synergies and coherence between the multilateral trading system and
PTAs
This section will identify areas of synergies and potential conflicts
between preferential trade agreements and the multilateral trading
system and will examine ways in which the two “trade systems” can be
made more coherent. The section concludes with a reflection of what the WTO's future agenda on PTAs could look like.
Notes:
1. The term preferential trade agreements is
used in the academic literature to refer to reciprocal free trade
agreements and regional trade agreements. This convention will be used
throughout the report. back to text
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