RESEARCH AND ANALYSIS

What will the World Trade Report 2011 be about?

Nadia Rocha: WTO Secretariat
Robert Teh: WTO Secretariat

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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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