RESEARCH AND ANALYSIS
Preferential Trade Agreements: Implementation Matters
Jean-Pierre Chauffour, Anabel González, and Jean-Christophe Maur
The surge of preferential trade agreements (PTAs) is fast reshaping the architecture of the world trading system and the trading environment of developing countries. As of end-2010, 278 PTAs have been notified by the WTO members and are currently in force. Integrating PTAs into a multilateral framework that reduces the extent of discrimination against - and complexity for -developing countries is likely to be one of the main challenges facing the world trading system in the next 10 years.
The nature and content of regional agreements is also evolving rapidly, as is the global trade environment. One important recent dimension of PTAs is their deepening scope, including more comprehensive treatment of border regulatory measures such as trade facilitation and standards, and increasingly addressing behind the border and complex regulatory issues, such as competition policy, investment policy, government procurement, and intellectual property. PTAs are also increasingly dealing with social and environmental policy issues. Often these policies are not covered in the current WTO rule book; nor are they on the table in the Doha negotiations.
While the increase in number, breadth and depth of PTAs is being extensively documented and discussed (e.g., Baldwin and Low, 2009; Estervadeordal, Suominen and Teh, 2009; Heydon and Woolcock, 2009), there is only limited knowledge on the challenges and opportunities associated with the actual implementation of PTAs or lack thereof. Yet, for many developing countries and private sector operators, the multitude and increasing depth of PTAs is cumbersome to manage and implement. As agreements proliferate, countries become members of several different agreements. This creates what has been referred to as “spaghetti bowls” of overlapping arrangements, with often different tariff schedules, sectoral and/or product coverage, implementation timeframes, rules of origin, customs procedures, and others. This column touches upon the implementation challenges of deep integration and briefly illustrates those challenges in the context of intellectual property (IP) provisions.
The implementation challenge of deep integration
Much of the literature on regional integration focuses on market access issues but today’s PTAs are increasingly looking beyond the market access dimension (Chauffour and Maur, 2010). They aim at achieving broader economic objectives such as locking-in domestic policy reforms, promoting international standards, and delivering regional public goods. Let’s not forget also that peace, security, and other non-economic strategic objectives are important and at times even dominant factors behind regional integration. So, effectively implementing deep integration and behind the border provisions in PTAs has become an enormous challenge. In a pioneering work, González (2009) has begun to document the complexity of effective PTA implementation in the context of Latin America.
Unlike tariffs and other trade policy instruments that can be conveniently and straightforwardly eliminated or reduced, deep integration entails revisiting with often a vast collection of legal, administrative and procedural measures that are more or less unique to each jurisdiction.
PTA implementation challenges are multi-faceted. First, at the highest level of policy making, deep integration PTAs can trigger major institutional changes. They can call for the reorganization of administrative institutions, the creation of new regulatory agencies, or even new ministries, as in the case of the United States-Peru PTA. Second, PTAs may require the drafting of new laws and regulations to strengthen the domestic regulatory framework. For instance, large pieces of new intellectual property regulations have been passed by countries signing agreements with the US and the EU (Biadgleng and Maur, 2010). Beyond these changes, which may be seen as “one-off” adjustments, a third dimension of implementation consists in administrative and operational procedural changes. Agencies need to train new staff such as patent examiners in the context of IP law, institute new judicial and administrative circuits and procedures that may require specialized courts, such as in competition law. Deep integration PTAs also involves transparency and monitoring requirements that may be onerous to implement. Fourth, the enforcement of newly adopted regulations requires the allocation of staff and resources to guarantee that the law is effectively applied. Fifth, administrative and judicial systems may also need additional expertise and staffing to deal with legal challenges brought by the implementation of highly specialized regulations.
Whether PTAs play a significant role beyond selected sectors where there is a strong market access interest from a powerful partner remains to be documented. On paper at least deep integration PTAs present characteristics that may support the hypothesis that they have a complementary role to play in assisting liberalization reform, along other reform efforts. PTAs are likely to be well suited for some forms of deep integration, which require much more than a textual agreement, with strong cooperation between small number of countries (this includes regional public goods), a focus on compliance and procedures, and frequent dialogue and adjustment as circumstances evolve. Regional integration can indeed provide flexible institutions, the forum for mutual support, and soft law dimensions facilitating such reform. Whether this is actually translating into a reality needs to be further documented. The World Bank has launched a series of country case studies to examine the challenges associated with PTA implementation in different regions of the world (Box 1). A finer knowledge of the challenges related to the implementation of deep PTAs would help negotiators assess the scope and pace of reforms and inform final users (i.e., domestic consumers and firms) about the merits of such integration.
Box 1. Common challenges associated with PTA implementation
The purpose of the case studies is to provide better information to trade policy makers and practitioners on how PTAs can be designed and implemented as instruments to bolster their trade competitiveness and leverage the global economy for growth and poverty reduction.
In light of the domestic and regulatory challenges to effective implementation of PTAs each study analyzes to what extent entering into a PTA has effectively driven or supported domestic institutional, policy and regulatory reforms in developing country partners. Each study attempts to provide answers to the following questions:
- What was the broader political and/or economic context to engage the PTA negotiations?
- What institutional changes has the signing and/or implementation of the PTA triggered? Have national institutions been created or been required to change? Have specific bilateral cooperation entities been created to deal with specific issues?
- Has the negotiation and/or implementation of the PTA had a material effect on the domestic legislation and regulation of specific sectors that are covered by the agreement? What administrative or legislative activity has this generated?
- What are the positive and negative aspects of implementation across the range of obstacles discussed above? Has the agreement created unexpected implementation difficulties/benefits?
- What has been the role and response of the private sector in implementing the PTA? Has the negotiations and/or implementation of the PTA been related to a broader agenda to improve the business climate, competitiveness, and productivity?
- Has implementation helped promote gender equality and other social concerns?
- Has implementation created any tension with other international trade commitments, such as the WTO or other PTAs that the government has signed?
- What have been the main drivers of implementation (human and financial capacity, including foreign assistance; political economy forces; external pressure; dispute settlement mechanisms; or other motivations such as creating regional public goods)?
- What policies, incentives, or mechanisms the partner country has put in place to facilitate the implementation of the PTA (financial assistance, technical assistance, capacity-building, training, etc.)?
- What impacts has the PTA had on trade outcomes (i.e., trade volumes, trade destination, trade composition, trade diversification, terms of trade, etc.) and trade cooperation within the region (between governments but also between the private sector of different countries)?
- What are the lessons for other developing countries, especially LDCs, with respect to implementing PTAs (with similar trade partners; and in general)?
Baldwin, Richard and Patrick Low, 2009, Multilateralising Regionalism: Challenges for the Global Trading System, Cambridge: Cambridge University Press.
Biadgleng, Ermias Tekeste and Jean-Christophe Maur, 2011, “The Influence of Preferential Trade Agreements on Implementation of Intellectual Property Rights in Developing countries: A First Look”, forthcoming Issue Papers - ICTSD Programme on Innovation, Technology and Intellectual Property.
Chauffour, Jean-Pierre and Jean-Christophe Maur (2011). “Preferential Trade Agreement Policies for Development: A Handbook,” forthcoming World Bank
Estevadeordal, Antoni, Kati Suominen and Robert Teh, 2009. Regional Rules in the Global Trading System, Cambridge: Cambridge University Press.
González, Anabel, 2009. The Implementation of Preferential Trade Agreements: A Conceptual Note, mimeo Inter American Development Bank, April.
Heydon, Kenneth and Woolcock, Stephen (2009) The rise of bilateralism: comparing American, European and Asian approaches to preferential trade agreements. United Nations University Press, Tokyo, Japan.
Ms. Gonzalez is Minister of Foreign Trade of Costa Rica, where she oversees the country’s international trade and investment portfolios. She has extensive experience in the formulation and advocacy of trade and investment policies; negotiation and implementation of trade agreements; building of trade-related institutional capacity; management of trade capacity building projects; and, enhancing the investment climate. Previously, Ms. Gonzalez has held several positions, including senior consultant on trade and investment issues for the IDB, Director of the Agriculture Division at the WTO, Costa Rica’s Chief Negotiator for CAFTA-DR, Director General of Costa Rica’s Investment Promotion Agency, Vice-minister of Foreign Trade, and Director General at the Ministry of Foreign Trade. She has published and lectured extensively in more than 25 countries on trade and investment issues. She has a law degree from the University of Costa Rica and a master of laws degree from Georgetown University
Mr. Chauffour is Lead economist in the World Bank’s International Trade Department, where he works on regionalism, competitiveness, and trade policy issues. Prior to joining the Bank in 2007, he spent 15 years at the IMF, where he held various positions, including mission chief in the African Department and representative to the WTO and UN in Geneva. Mr. Chauffour has extensive economic policy experience and has worked in many areas of the developing world, most extensively in Africa, the Middle East, and Eastern Europe. He holds a Master in Economics and a Master in Money, Banking, and Finance from the Panthéon-Sorbonne University in Paris. He is the author of “The Power of Freedom: Uniting Human Rights and Development” (Cato, 2009).
Jean-Christophe Maur is a Senior Economist in the Growth and Competitiveness Program at the World Bank Institute. His current responsibilities in WBI include leading the regional integration program and contributing to the Development Debates platform. Jean-Christophe joined the World Bank in 2008 from the UK Department of International Development, where he was in charge of UK trade negotiations in several areas, and also of managing multilateral trade assistance. His research interests are regional trade integration and public goods, trade facilitation and non-tariff barriers, intellectual property rights, and trade institutions. Jean-Christophe has a Doctorate from Institut d'Etudes Politiques de Paris, and is a graduate of Essec business school. He was also a Visiting Fellow at Harvard University