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Asian Development Outlook 2002 :
III. Preferential Trade Agreements in Asia and the Pacific
The Economic and Broader Effects of PTAs: Theoretical Arguments
Despite the rapid growth of PTAs over the past few decades, the theoretical debate over their role in increasing trade openness is far from over. Significant disagreement remains as to whether PTAs are building blocks or impediments to the realization of global free trade, and there is a variety of opinions over whether and how PTAs can coexist alongside the existing multilateral trading arrangements. Authors on both sides of the debate tend to focus on and critique different aspects of PTAs. The extent of trade liberalization within a PTA, the treatment of nonmembers, the harmonization of a range of policies linked to trade, the dispute settlement mechanisms, and the characteristics of members are just a few of the aspects of PTAs that have been analyzed (Table 3.8). This section focuses on extracting concrete and realistic policy guidelines from the theoretical analysis, after a discussion of the economic effects of PTAs, their broader non-economic effects, and the long-term role of PTAs in the multilateral trading arrangements.
Table 3.8 Main Features of Preferential Trade Agreements
| Feature |
Importance for Outcomes |
| Membership |
|---|
| Diversity in members’ level of development |
More diverse PTAs increase the potential for technology transfer and for increasing efficiency by specialization. |
| Combined size of members’ economies |
A larger combined economy is more attractive for investment and creates more potential for trade. |
| Members’ resources and economic structures |
Differences in the structure of the members’ economies and resources determine the extent of trade within the PTA and individual countries’ incentives to specialize. |
| Policies |
|---|
| Extent of tariff preference |
Less tariff preference for members versus nonmembers reduces the potential for distortion of trade flows. A common external tariff reduces possibility of distorting trade flows among members. |
| Sectors covered in agreement |
Closer approximation of free trade creates more incentives for specialization and creates more competition for domestic industries. Greater sector coverage increases the potential welfare gains. |
Nontrade and trade-facilitating policies covered |
Agreements regarding policies other than trade allow countries to commit to domestic reforms and further lower the transactions costs of trade. |
| Rules of origin |
Simple and transparent rules of origin minimize the potential for unproductive rent seeking and corruption. |
| Institutions |
|---|
| Mechanism for dispute resolution |
Mechanism for dispute resolution affects the PTA’s ability to reduce conflict between members. The ability to impose stronger sanctions increases the commitment value of the PTA. |
| Frequency of meetings |
Meetings are an opportunity for exchanging information, and for coordinating strategies for negotiation in other settings such as WTO. Interaction of higher levels of policymakers is likely to have the greatest benefits for policy coordination. |
Source: Clarete, Edmonds, and Seddon, forthcoming, Asian Regionalism and its Effects on Trade in the 1990s.
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