Regional trade liberalisation: a theoretical review of dynamic time‐path and stability issues

In recent years, the use of regional trade liberalisation arrangements (RTAs) has proliferated, while multilateral negotiations under the WTO have proceeded slowly, resulting in a debate over the roles of regional and multilateral liberalisation. This paper reviews the key theoretical contributions in the debate over RTAs, especially the recently developed themes addressing dynamic time‐path and stability issues. However, due to the variety of motivations for RTA member countries to expand trading blocs and for non‐members to seek entry, research has found few general conditions under which the formation of RTAs can become the ‘stepping stone’ or ‘stumbling block’ towards global free trade.     

Welfare Implications of RTAs Within the WTO System in the Presence of FDI

We examine the welfare implications of the two major types of regional trade agreements (RTAs)—free trade agreements (FTAs) and customs unions (CUs)—within the WTO system in the presence of FDI. To do so, we analyze multilateral tariff cooperation in the context of two types of WTO regimes: a pure WTO regime without any RTAs and a modified WTO regime in which RTAs coexist with the multilateral framework. Our main finding is that in the presence of significant foreign ownership, RTAs within a multilateral system do not raise the national welfare of its members, thereby weakening the incentives of countries to form RTAs.     

Asia/Pacific Regional Trade Agreements: An empirical study

At the same time as the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) have been encouraging trade liberalized, there has been a proliferation of Regional Trade Agreements (RTAs). These RTAs also aim to reduce trade barriers, but they do so it in a preferential way. There is continued debate as to whether such RTAs are an effective way of achieving free trade, or if increased trade among members causes less trade with non-member countries? If RTAs increase total trade, this is known as ‘trade creation’, whereas if the extra trade occurs at the expense of non-members, this is called ‘trade diversion’. Trade creation implies improved welfare, whereas ‘trade diversion’ may adversely affect welfare. This paper examines five different RTAs using a gravity model to see if they have been trade creating or trade diverting. Annual data from 26 countries covering five RTAs in the Asia and Pacific region for the years 1980–2000 was used.The results show that the effects of the different RTAs varied remarkably. The Association of South East Asian Nations (ASEAN) and the Australian and New Zealand Closer Economic Relations (CER) fostered greater trade with trading partners and with the rest of the world. While the Asian Pacific Economic Cooperation (APEC), the Southern Cone Common Market (MERCOSUR) and the North American Free Trade Association (NAFTA) tended to be trade diverting, that is, they expanded intra-bloc trade at the expense of trade with others.     

Best practices for regional trade agreements

Complicated web of hub-and-spoke type of overlapping free trade agreements (FTAs) can result in high costs for verifying rules of origin (RoO) and trade diversion or suppression effects. This paper attempts to provide best practices for regional trade agreements (RTAs) to enhance global free trade by mitigating these negative effects. By adopting a gravity regression analysis, we quantitatively estimate the trade creation and diversion effects of cumulated RoO (bilateral, diagonal, and full cumulation) for RTAs established under GATT Article XXIV and under the Enabling Clause. We find that (i) RTAs, in general, create trade among members and divert trade from nonmembers, whereby the net trade-enhancing effect is rather weak; (ii) RTAs should be established under the comprehensive GATT Article XXIV, rather than the piecemeal Enabling Clause; and (iii) full cumulation is the most optimal provision in terms of creating the most intra-bloc trade and diverting the least extra-bloc trade. Overall, we strongly suggest that RTAs should employ full cumulation of RoO under GATT Article XXIV.     

Regional Trade Agreements in East Asia: Will They Be Sustainable?*

By assessing the sustainability of regional trade agreements (RTAs) for East Asia, we quantitatively evaluate the likely impact of proposed East Asian RTA strategies on the East Asian economies and the world economy with respect to consumption, production, volume of trade and terms of trade effects by applying a multi‐country and multi‐sector computable general equilibrium model. These strategies include: (i) the ASEAN Free Trade Area (AFTA: a being‐left‐alone strategy); (ii) an ASEAN Hub RTA (a hub‐and‐spoke type of overlapping RTA strategy); (iii) the AFTA versus a China–Japan–Korea RTA (a duplicating or competing RTA strategy); and (iv) an ASEAN+3 RTA (an expansionary RTA strategy). We find that an expansionary ASEAN+3 RTA could be a sustainable policy option because the members’ gains would be significantly positive, with more equitably distributed gains between members than when using other strategies. The effect on world welfare would also be positive and the negative effect on nonmembers would not be very strong. More interestingly, if the East Asian countries cooperate with Pacific Basin countries to form an APEC‐level RTA, such as a free trade area of the Asia‐Pacific, the extension of the regional trade bloc might be considered a more desirable policy option than the proposed East Asian RTAs for East Asian economies, even though countries excluded from the free trade area of the Asia Pacific are worse off.     

Measuring Multi‐Membership in Economic Integration and Its Trade Impact: A Comparative Study of ECOWAS and SADC

One of the intriguing aspects of African regional trade agreements (RTAs) is the extent of multi‐membership, where many African countries are members of more than one RTA. Using a gravity model for 25 countries and the years 1980‐2006, we measure the extent of multi‐membership and compare its impact in two major African regional blocs, Economic Community of West Africa States (ECOWAS) and Southern Africa Development Community (SADC). We find that the impact of multi‐membership critically depends on the characteristics of the multi‐membership of regional integration initiatives. We find a positive impact if an additional membership complements the integration process of the original regional integration initiative: overlapping memberships had a much stronger and significant positive effect on bilateral trade within ECOWAS compare with an insignificant impact within the SADC.     

A Re-Examination of the Effect of GATT/WTO on Trade

The empirical literature on the effect of the GATT/WTO on trade provides ambiguous results. This paper sheds new light on this issue by re-examining the ex post (partial) effect of GATT/WTO membership on trade using multiple econometric specifications of the gravity equation and analysing several potential asymmetries of the GATT/WTO system. Our results show an uneven but pervasive evidence that membership in GATT/WTO have had an economically significant effect on members’ bilateral trade. Moreover, we find that the GATT/WTO effect operates through both trade margins but mainly through the intensive margin.     

贸易协定之于出口增长:是激励还是阻力?

贸易协定已经成为区域贸易合作的重要方式,逐渐被各国所重视。文章从贸易协定异质性视角,构建贸易协定异质性指数,同时运用主成分分析法提取的新变量,共同探究其对2000-2014年中国出口三元边际的影响。研究发现,强制性指数对三元边际促进作用显著,说明贸易条款总体上能够降低贸易成本、促进出口。非强制性指数和制度质量指数对三元边际抑制作用显著,表明其所具有的灵活性和隐蔽性,成为抑制贸易增长的主要原因。主成分提取的新变量对三元边际的影响显著且差异各半,进一步说明贸易协定异质性的存在。明确贸易协定异质性,能够根据贸易条款执行力的不同,有重点地签订贸易协定,使其更好地服务于中国对外贸易发展。     

区域贸易安排的保护性:引力模型

通过2000-2005年EU、APEC、NAFTA三个区域贸易组织双边贸易流量基于合并数据的引力模型得出结论:三个区域贸易组织的净贸易效果均为贸易转移,但区域保护程度顺次减弱。总体上,发生贸易转移的方向从以发达国家为主的区域贸易组织转移到以新兴市场国家为主或由发达国家与发展中国家共同组成的区域贸易组织。因而,对内积极推行自由贸易,对外具有很强的贸易保护倾向是各国推行区域贸易政策的显著特征。     

The impact of regional trade agreements on the quality of export products in China’s manufacturing industry

In recent years, under the risks of anti-globalization trend and uncertainty of trade war, countries have been entering into bilateral and multilateral regional trade agreements (RTAs). This study constructs both theoretical and empirical models to examine whether these RTAs can improve the quality of exported products among Chinese manufacturing enterprises, thereby expanding on a new policy research area that focuses on improving Chinese export quality or import quality of RTAs trade partners from China. The study finds that RTAs’ clause quantity (measured by clause coverage rate) and clause quality (measured by law commitment rate) play different roles. The former can generate “spaghetti bowl” effect but the latter can significantly promote export quality for Chinese manufacturers. The study also finds that RTAs can promote balanced development among the various regions in China and that a new generation of binding clauses in the “WTO-X field” with more new clauses strongly affects efforts to improve the quality of products exported to high and upper-middle income markets. We also find that for most industries, signing high-quality RTAs helps to improve export product quality, but there are no effect for some industries with laggard or special advanced technology.     

On trade creation and regional trade agreements: does depth matter?

Regional trade agreements (RTAs) are usually classified according to their form into four broad categories: preferential arrangements, free trade agreements, customs unions and common markets. This paper investigates whether the form/depth of RTAs matters concerning their effect on trade. I use a proper specification of the gravity model with panel data on the 1960–2000 period, which specifically control for self-selection into agreements. Results show that creating any kind of RTAs providing trade preferences to their member countries significantly increases bilateral trade. Nevertheless, their average treatment effect on bilateral trade does not significantly differ according to the depth of agreements.

Testing Conflicting Political Economy Theories: Full‐Fledged versus Partial‐Scope Regional Trade Agreements

We apply a duration analysis to test the conflicting predictions of the median voter model and the lobbying model using panel data on regional trade agreement (RTA) formation. Our results show that the pro‐labor prediction of the median voter model is supported by the full‐fledged free trade areas and customs unions (FTAs/CUs), while the pro‐capital prediction of the lobbying model is supported by the partial‐scope preferential trade arrangements among developing countries. This finding holds better for the country pairs with more different capital‐labor ratios as a result of the stronger distributional effects of RTAs. The support for the median voter model (lobbying model) is stronger when the two countries in a pair have left‐oriented (right‐oriented) governments. I also find stronger support for the median voter model for the subset of FTAs/CUs with service coverage and stronger support for the lobbying model for countries that place higher weight on political contribution.     

Regional Trade Arrangements in Africa: Past Performance and the Way Forward

Abstract: Regional trade arrangements (RTAs) in Africa have been ineffective in promoting trade and foreign direct investment. Relatively high external trade barriers and low resource complementarity between member countries limit both intra‐ and extraregional trade. Small market size, poor transport facilities and high trading costs make it difficult for African countries to reap the potential benefits of RTAs. To increase regional trade and investment, African countries need to undertake more broad‐based liberalization and streamline existing RTAs, supported by improvements in infrastructure and trade facilitation. Early action to strengthen the domestic revenue base would help address concerns over revenue losses from trade liberalization.     

Trade Agreements,Trade Liberalization and Economic Growth: A Selective Survey

Since 1950 there has been a massive liberalization of world trade taking various forms including the formation of free trade areas, customs unions, unilateral reductions in tariff barriers, and reductions in non‐tariff barriers to trade. To what extent has this liberalization contributed to the growth performance of countries, and what are the mechanisms through which faster export growth may impact favourably on economic growth? The paper first surveys the empirical literature which seems to show that countries that participate in regional trading agreements (RTAs) fare worse than countries which reduce tariffs unilaterally, and secondly comments on the theoretical literature relating to the mechanisms through which exports affect growth. It is argued that the orthodox neoclassical supply‐side argument is only half the story, and much more emphasis needs to be placed on the effect of export performance in relaxing a balance of payments constraint on demand. Depuis 1950, le commerce mondial a connu une libéralisation considérable qui a pris diverses formes: formation de zones de libre‐échange, d’unions douanières, abaissement unilatéral des barrières tarifaires et réduction des barrières non tarifaires. Dans quelle mesure cette libéralisation a‐t‐elle contribuéà la croissance des pays et par quels mécanismes une expansion plus rapide des exportations peut‐elle influencer positivement la croissance économique? Le document passe d’abord en revue le littérature empirique qui semble démontrer que les pays qui participent à des accords commerciaux régionaux (ACR) sont en pire posture que ceux qui abaissent unilatéralement les barrières tarifaires. Le document formule ensuite des observations sur la littérature théorique concernant les mécanismes par lesquels les exportations influent sur la croissance. Il soutient que l’argument néoclassique orthodoxe axé sur l’offre n’explique pas tout, et qu’un accent plus appuyé doit à tre mis sur l’effet que les résultats à l’exportation, en tant que facteur d’atténuation des problèmes de la balance des paiements, peuvent avoir sur la demande.     

Does the WTO Make Trade More Stable?

I examine the hypothesis that membership in the World Trade Organization (WTO) and its predecessor the General Agreement on Tariffs and Trade (GATT) has increased the stability and predictability of trade flows. I use a large data set covering annual bilateral trade flows between over 175 countries between 1950 and 1999, and estimate the effect of GATT/WTO membership on the coefficient of variation in trade computed over 25-year samples, controlling for a number of factors. I also use a comparable multilateral data set. There is little evidence that membership in the GATT/WTO has a significant dampening effect on trade volatility.JEL Classification Number: F13     

Going beyond Cancun: Realizing the development promise of the Doha agenda

The launch of a new trade round in Doha in November 2001 was a major breakthrough following the discord in Seattle in 1999. The Doha Round is the first set of multilateral trade negotiations in which the needs and interests of developing countries have been officially declared a priority and whose conclusion deemed essential. However, the failure of the Doha negotiations in Cancun in September 2003 was a major setback. The trade talks are now stalled in several policy domains vital to developing countries such as agriculture, non‐farm trade, access to patented drugs, special and differential treatment and dispute settlement, and in areas of interest to the developed countries such as the “Singapore issues” dealing with investment, competition, trade facilitation and government procurement This paper discusses the reasons behind the failure, its wider implications as well as the policies that member governments of the World Trade Organization (WTO) will need to make to move beyond Cancun.     

中国与世界贸易组织争端解决机制:评估和展望

在多边框架内有效解决贸易争端是中国申请加入世界贸易组织的主要动机之一。作者分析了中国"入世"10年来参与世界贸易组织争端解决活动的具体情况,重点讨论了两个关键性问题:世界贸易组织的争端解决机制能否有效预防成员对协定的违反,维护中国的贸易利益?其他世界贸易组织成员在使用争端解决机制时是否存在针对中国的"好讼"倾向?作者认为,随着经济实力的增长、国际经济交往的加深和对争端解决活动日益积极的参与,中国利用国际经济规则来遏制他国针对性贸易保护主义行为的能力相应增强。在世界贸易组织框架下,中国国际经济地位的相对变化是出现针对中国"好讼"现象的重要原因。因为国家间经济地位的相对变化改变了相互间合作的收益,在多哈回合进展有限的情况下,其他成员希望通过世界贸易组织的申诉强制实施更高水平的国际合作。在信息不对称条件下,出口额和贸易平衡状况等现有观测指标的缺陷进一步加强了其他成员对中国的关注,提高了其对中国申诉的可能性。此外,世界贸易组织成员政府对特定部门利益的偏重以及对争端解决机制的策略性使用都从不同途径提高了贸易伙伴对中国申诉的动力。     

Firm size-specific trade effects of regional trade agreements: Estimating extensive and intensive margins of trade

We estimate the impacts of Korean firms’ participation in regional trade agreements (RTAs) on the extensive and intensive export margins by identifying exporting firms based on their firm size—small and medium-sized enterprises (SMEs) and large enterprises (LEs) at the 5 399 HS six-digit commodity level—and specifying characteristics of RTAs from 2004 to 2015. We apply the EK Tobit estimation technique to control zero trade and the OLS estimation with importer-product and time fixed effects to alleviate the endogeneity problem. We find that firm size, product type, and depth of RTA significantly matter. Specifically, we find that deeper RTAs with larger, developing, and closer members significantly enhance the export creation effects of SMEs and LEs. Regarding the firm size-specific effects, we find that SMEs are less sensitive to exploiting RTA participation but more sensitive to the import market size, bilateral and relative trade costs, and the RTA characteristics. LEs’ export creation is mainly driven by the intensive margin, while SMEs’ export creation is driven by extensive and intensive margins (slightly more by the extensive margin). For the product-specific effects, we find that Korea's major exportable products such as chemicals, basic metals, motor vehicles, and transport equipment generate significantly strong export creation effects for both LEs and SMEs through their participation in RTAs.     

China's Anti‐dumping Problems and Mitigation through Regional Trade Agreements

The present paper explores the opportunities for China's regional trade agreement (RTA) initiatives to mitigate its anti‐dumping problems. The paper highlights the severity and discriminatory nature of China's anti‐dumping problems. The high concentration of the share of anti‐dumping actions taken by the top 4 and top 8 anti‐dumping initiators is noted. Our finding of a weak effect of existing RTAs on mitigating China's anti‐dumping problems supports the argument that China could become more active in mitigating anti‐dumping problems through RTA negotiations. An RTA can include a higher level of openness in exchange for an improvement in regional anti‐dumping provisions. Case studies on RTAs involving the EU, the USA and India offer some precedents for offering inducements and modifying regional anti‐dumping provisions. The approaches for China may lie in obtaining market economy status from intensive anti‐dumping initiators at RTA levels and also altering regional anti‐dumping provisions that could be put in place in exchange for some potential concessions.     

The Evolution and Reshaping of Globalization: A Perspective Based on the Development of Regional Trade Agreements

With the weakening role of the World Trade Organization multilateral trading system, the globalization pattern is moving toward regional economic integration. As a result, the number of regional trade agreements (RTAs) has rapidly increased. New trends in international economics and trade, such as the withdrawal of the US from the Trans‐Pacific Partnership and the trade disputes between the US and China, have revealed the intention of the developed countries represented by the US to reshape the direction of globalization. This paper combines the relevant research conclusions and current stylized facts to examine the evolution and reshaping of globalization. We find that: (i) countries have different attitudes toward the recent round of globalization, which are related to changes in the patterns of income distribution within countries caused by the last round of globalization; and (ii) regional economic development is an effective way to reshape globalization. The self‐strengthening effect of the hub country in the trade network has promoted global RTA expansion.