Sunday, 27 March 2011

RTAs: do they matter?

Theresa Carpenter & Andreas Lendle posted an interesting article on preferential trade agreements (PTAs) at VoxEU. The question they are trying to answer is: we all know that PTAs are annoying for the multilateral trading system, but do they matter in reality?

The answers are:
1. They don't matter for the big guys. According to them, for the top 20 importers in 2008, which accounts for almost 90% of world trade, only 16% of the trade is conducted on a preferential basis. Personally I don't think this to be a surprising result for the following reasons:
A. Much of world trade is already trading at very low or zero tariff rates (noted in their paper);
B. There're typically no PTAs among the big players (with the exception of NAFTA and intra-EU trade).

2. They matter a lot for the small players. According to their study, the 25 countries that receive the highest preferential margins on their exports are mostly African, Caribbean and Pacific countries who export items with high MFN tariffs duty-free to the EU (and to a lesser extent to the US).

Tow lessons we can draw from the study:
1. For smaller countries, multilateral trade negotiation at the WTO doesn't mean much, at least with regard to market access;
2. For big countries, their optimal strategy should be multilateralism rather than regionalism. But why do we still see all these aggressive PTA pushes from the big players? Mainly due to the lobbying from industries which are A. particularly affected by high tariffs in a few sectors (textiles, etc); B. more concerned with rules/regulatory issues rather than MA issues (IPR, etc).