Politics of Preferential Trade Agreements

by

Mark Manger

• LAST REVIEWED: 29 November 2011
• LAST MODIFIED: 29 November 2011
• DOI: 10.1093/obo/9780199756223-0055

Introduction

Preferential trade agreements (PTAs) are international agreements to reduce the barriers to trade and other forms of commerce between two or more countries. In the absence of a PTA, states usually trade on a most-favored-nation (MFN) basis. MFN tariffs are nondiscriminatory, so imports from all sources are treated equally. In a PTA, the members grant each other better market access than they give other states. PTAs are therefore an exception to the MFN principle that underpins the World Trade Organization (WTO) and are permitted only under Art. 24 of the General Agreement on Tariffs and Trade (GATT) and Art. 5 of the General Agreement on Trade in Services (GATS). PTAs fall into four categories: partial scope agreements that liberalize only some of the trade between their members; free-trade agreements (FTAs), in which each member retains the right to set its own MFN tariffs; customs unions that share an external tariff; and common markets in which all factors of production flow freely.

General Overviews

More than 80 percent of PTAs in force as of 2011 had been concluded since the early 1990s, prompting a flurry of publications from economists and political scientists. Initially, the former focused on the consequences and the latter on the causes of PTAs. Reflecting a convergence of methods and subjects of study, both disciplines now regularly cite each other’s work. The surveys here tend to cover both economics and politics. Mansfield and Milner 1999, written by the foremost authorities in political science, covers the early literature well. Pomfret 2007 and Whalley 2008 are accessible pieces that sum up the policy developments and point out gaps in our understanding of PTAs. Panagariya 1999 takes a strong stance against PTAs as a means to liberalize trade and favors the World Trade Organization (WTO). Bhagwati, et al. 1999 is a collection of previously published essays, almost all of them landmark pieces. Mattli 1999 puts PTAs in the context of other regional arrangements. Crawford and Fiorentino 2005 and Fiorentino, et al. 2007 are excellent factual summaries.

• Bhagwati, Jagdish N., Pravin Krishna, and Arvind Panagariya, eds. Trading Blocs: Alternative Approaches to Analyzing Preferential Trade Agreements. Cambridge, MA: MIT Press, 1999.

  Collection of previously published essays and therefore a useful starting point to learn about the earlier generation of political economy explanations of PTAs and their effects. Generally critical of PTAs in tone.

• Crawford, Jo-Ann, and Roberto V. Fiorentino. The Changing Landscape of Regional Trade Agreements. Geneva, Switzerland: World Trade Organization, 2005.

  Takes stock of the formation of PTAs among WTO members; good point to start for a factual overview. World Trade Organization working paper.

• Fiorentino, Roberto V., Luis Verdeja, and Christelle Toqueboeuf. The Changing Landscape of Regional Trade Agreements: 2006 Update. Geneva, Switzerland: World Trade Organization, 2007.

  Update of Crawford and Fiorentino 2005; read in conjunction with that piece as it makes frequent cross-references.

• Mansfield, Edward D., and Helen V. Milner. “The New Wave of Regionalism.” International Organization 53.3 (1999): 589–627.

  DOI: 10.1162/002081899551002

  Although already dated, provides an excellent overview of the literature in political science and economics published until the late 1990s. Literature review of key works in economics accessible for those outside the field. Available online by subscription.

• Mattli, Walter. The Logic of Regional Integration: Europe and Beyond. Cambridge, UK: Cambridge University Press, 1999.

  DOI: 10.1017/CBO9780511756238

  Not strictly about PTAs, but has important insights regarding when and why trade agreements develop into regional integration arrangements.

• Panagariya, Arvind. “The Regionalism Debate: An Overview.” World Economy 22.4 (1999): 477–511.

  Critical of PTA formation, reviews the WTO rules on such agreements, how they interact with current PTA formation, and how they could be revised to provide better disciplines. Available online by subscription.

• Pomfret, Richard. “Is Regionalism an Increasing Feature of the World Economy?” World Economy 30.6 (2007): 923–947.

  DOI: 10.1111/j.1467-9701.2007.01038.x

  Useful counterpoint to many alarmist writings claiming that PTAs sound the death knell for multilateral trade liberalization: Many agreements are not fully implemented, and others pass away unnoticed, so their effects should not be overstated. Available online by subscription.

• Whalley, John. “Recent Regional Agreements: Why So Many, Why So Much Variance in Form, Why Coming So Fast, and Where Are They Headed?” World Economy 31.4 (2008): 517–532.

  DOI: 10.1111/j.1467-9701.2008.01094.x

  Emphasizes that PTAs are often a means to liberalize trade beyond goods, but that the diversity of partners and institutional forms also suggests that many PTAs are irrelevant in terms of trade creation. Available online by subscription.