Good for some,bad for others: US investors and non-trade issues in preferential trade agreements

Preferential trade agreements (PTAs) trigger investment through their commitment to a liberal market economy. Increasingly however, PTAs go far beyond liberalizing trade and investment flows. Especially controversial features included in most modern PTAs are environmental and labor standards. Do these standards affect business activity? If so, how do investors react to such non-trade issues in trade deals? The literature provides inconclusive findings about the impact of standards on foreign direct investment (FDI). Some contributors argue that strict standards decrease FDI, whilst others claim that environmental and labor protection increases productivity and, in consequence, inward investment. In all likelihood, the usage of aggregated FDI data, as is the case for most studies, causes confusion. I expect standards to influence investors’ decisions – but heterogeneously across sectors. Environmental and labor standards should reduce FDI in polluting and low-skilled labor endowed industries, but increase investment in environmentally clean and high-skilled labor abundant sectors. Based on an original dataset of environmental and social standards in trade agreements and at the sector-level disaggregated US-FDI data, I find robust support for my argument. The paper provides a more nuanced picture on the standards and investment nexus: Standards have no uniform effect on multinationals. Instead, they are good for some, but bad for other industries.     

Protecting labor rights in preferential trade agreements: The role of trade unions,left governments,and skilled labor

This paper investigates variation in the design of labor provisions in preferential trade agreements (PTAs) by focusing on the power of trade unions, the role of government partisanship, and the relative strength of skilled labor. We expect strong trade unions and left-leaning governments to be associated with more, and more far-reaching labor provisions in PTAs. We also expect the strength of skilled workers relative to the strength of unskilled workers to negatively correlate with the depth of labor provisions in PTAs. In addition, the effect of trade unions should be conditional on both the presence of left government and democracy. We test these hypotheses relying on an original dataset of labor provisions included in 483 PTAs signed between 1990 and 2016. This dataset covers 140 different labor provisions that relate to six overarching dimensions. The quantitative analysis finds support for the expectations concerning the influence of trade unions and the role of a country’s skill profile.     

Preferential Trade Agreements and Trade Expectations Theory

Studies find that members of preferential trade agreements (PTAs) are less likely to be involved in militarized conflict. An expectation of continuing amicable trade relations is among the factors linking PTAs to peace. However, this role of PTAs is difficult to test due to the problem of observational equivalence; PTAs correlate with trade levels and liberalization, factors also linked to peace. In this article, we isolate the impact of PTAs on trade expectations by distinguishing between signed agreements and those in force. A focus on signed but not-yet-in-force PTAs allows us to assess the correlation between agreements and peace before other pacifying, and therefore potentially confounding, elements emerge. Statistical tests spanning 1957 to 2000 demonstrate that signed PTAs are pacifying, while in-force agreements have no statistically significant impact when controlling for other factors linked to peace.     

Promoting trade through private law: Explaining international legal harmonization

A large body of research examines states’ efforts to increase international trade through public law, that is, by forming preferential trade agreements (PTAs) that lower governmental barriers to trade. Scholars, however, have overlooked another mechanism through which states seek to facilitate trade: international harmonization of private law. Underlying legal harmonization is the assumption that cross-national variation of commercial law impedes trade; by contrast, similarity of laws across countries encourages trade by reducing uncertainty and transaction costs. I argue that the harmonization of private law acts as a substitute for the public-law channel of stimulating trade: countries with limited PTA partnerships make up for this deficiency by joining initiatives for private-law harmonization. This argument is tested by analyzing the UN Convention on Contracts for the International Sale of Goods-one of the primary instruments of legal harmonization. Indeed, countries that are party to shallow PTAs or have few PTA partners are more likely to ratify this private-law convention. Overall, this article urges scholars of trade and international law to broaden their research agenda to include private law.     

The impact of preferential trade agreements on governmental repression revisited

Previous research suggests that most treaties are ineffective in ensuring countries’ compliance with human rights standards. It has been argued, however, that preferential trade agreements (PTAs) including ‘hard’ human rights standards can withhold economic benefits and, thus, can have a real potential to substantially reduce human rights violations. The following article questions this as existent work on the effects of PTAs on human rights standards neglects a selection process underlying the implementation of these treaties. Countries being aware of the ‘shadow of the future’ already take into account what may happen at the succeeding enforcement stage when establishing a particular PTA. This implies that states agree on ‘hard’ human rights standards in PTAs only if they have a general propensity to abide by human rights in the first place. For testing the empirical implications of their argument, the authors collected new data on PTAs in 1976/77-2009, and employ genetic matching techniques. The results support the theoretical argument that PTAs are unlikely to affect human rights compliance when controlling for the outlined selection problem.     

The Politics of Preferential Trade Liberalization in Authoritarian Countries

While autocracies constitute a third of all signatories of preferential trade agreements (PTAs), very little research has explained why some autocrats join PTAs while others do not. We argue that this variation reflects the leader’s degree of vulnerability to elite-led coups during leadership change–whether a leader enters power legally or extralegally. New extralegal leaders are more vulnerable than new legal leaders, which encourages extralegal leaders to use PTAs to both build support from exporters and pressure disloyal importers. We test our hypotheses using a dyadic data set of 120 autocracies from 1960 to 2014. Our results show that extralegal leaders sign more and deeper PTAs than legal leaders. Moreover, we find that extralegal leaders with a high risk of coups are more likely to form deep PTAs than extralegal leaders with a low risk of coups. In line with our argument, we also provide evidence that extralegal leaders sign trade agreements that are likely to be enforced. Our article has implications for the political economy of trade and for development studies.     

Multilateral determinants of regionalism revisited

The idea that some features of the multilateral trading system create incentives for countries to join preferential trade agreements (PTAs) is among the first and most influential explanations for the wave of regionalism in the last decades. Until recently, only a few empirical studies have explored this hypothesis and their results have been accepted by many researchers and policy-makers to be a fact. In this study we revisit the question of whether multilateral events are important determinants of regionalism. We use an extended dataset and implement several empirical specifications in the analysis. Unlike previous work, our results provide little support for the relevance of variables such as the number of GATT/WTO members, ongoing trade negotiation rounds, and trade disputes as predictors of PTA formation.     

Seal the Deal: Bargaining Positions,Institutional Design,and the Duration of Preferential Trade Negotiations

Multilateral negotiations at the World Trade Organization have stalled. This has contributed to a steep rise in preferential trade agreements (PTAs). At the same time, negotiations for PTAs have not always proven quick and painless: While some treaties are sealed within a few months or days only, other agreements are preceded by protracted bargaining processes in trade and trade-related issue areas. In this article, we provide a theoretical explanation for this empirical variation. More specifically, we argue that PTA negotiations take longer the greater the distance between the prospective partners’ initial bargaining positions. Moreover, we contend that negotiation processes become more protracted the higher the relative ambition of the prospective PTA. Due to the limited links to the domestic political arena in autocracies, we expect this latter effect to play out for groups of democratic bargaining partners only. We test these two hypotheses for 198 preferential trade negotiations using novel measures for bargaining templates and the ambition of PTA clauses. In our two-stage survival models, we find support for our argument. In line with qualitative evidence from recent preferential trade initiatives, our models indicate that services, investment and intellectual property rights are particularly sticky agenda items for democratic leaders at the international bargaining table.     

Why do some international institutions contain strong dispute settlement provisions? New evidence from preferential trade agreements

To understand why some international institutions have stronger dispute settlement mechanisms (DSMs) than others, we investigate the dispute settlement provisions of nearly 600 preferential trade agreements (PTAs), which possess several desirable case-selection features and are evoked more than is realized. We broaden the study of dispute settlement design beyond “legalization” and instead reorient theorizing around a multi-faceted conceptualization of the strength of DSMs. We posit that strong DSMs are first and foremost a rational response to features of agreements that require stronger dispute settlement, such as depth and large memberships. Multivariate empirical tests using a new data set on PTA design confirm these expectations and reveal that depth – the amount of policy change specified in an agreement – is the most powerful and consistent predictor of DSM strength, providing empirical support to a long-posited but controversial conjecture. Yet power also plays a sizeable role, since agreements among asymmetric members are more likely to have strong DSMs due to their mutual appeal, as are those involving the United States. Important regional differences also emerge, as PTAs across the Americas are designed with strong dispute settlement, as are Asian PTAs, which contradicts the conventional wisdom about Asian values and legalization. Our findings demonstrate that rationalism explains much of international institutional design, yet it can be enhanced by also incorporating power-based and regional explanations.     

Sustaining multilateral trade cooperation in a multipolar world economy

The deadlock in the WTO Doha Round has been accompanied by an increased focus on the negotiation of preferential trade agreements, including so-called ‘mega-regionals’. This paper discusses possible implications for—and possible responses by—excluded countries that have little prospects of participating in most of the mega-regionals. A number of complementary avenues are identified through which such countries might attenuate the potential downsides of preferential trade liberalization among large countries, as well as some proposals that would expand the scope to pursue cooperation on regulatory policies in the WTO as opposed to PTAs.     

Preventing protectionism: International institutions and trade policy

This paper examines the role of international institutions in preventing the rise of protectionism. We analyze states?? choices in trade policy during the current global economic crisis, a situation likely to exacerbate uncertainty in the conduct of commercial relations and to push countries toward ??beggar-thy-neighbor?? trade policies. The main argument of the paper is that the numerous international institutions present in the international system during the current economic crisis serve as conveyors of information and mechanisms of commitment and socialization. They mitigate the uncertainty problem that prevails in prisoner??s dilemma settings such as trade. Economic international organizations increase the flow of information about the preferences and behaviors of its members. Non-economic organizations also have a role to play as social environments that encourage cooperation. Specialized international institutions devoted to trade, such as the WTO and preferential trade agreements (PTAs), not only provide monitoring and enforcement functions but also lock in commitments to liberal trade through legal obligations that make defections costly. We test our argument using a dataset of trade policies during the current economic crisis and of membership in international organizations. The paper finds strong support for the role of international institutions as commitment and socialization mechanisms in preventing the rise of protectionism.     

How effective are preferential trade agreements? Ask the experts

Limited data on regional and preferential trade agreements prevent social scientists from testing some of the international cooperation literature??s most important claims. Expert surveys??a technique that is widely used in the field of comparative politics but thus far underutilized in international relations??allow us to capture many aspects of trade agreements for which data would otherwise be unavailable. They also provide us with a means of comparing agreements across regions and issue areas. We present a new dataset of expert opinion on the world??s regional trade organizations. Our survey covers 24 dimensions of 40 different regional agreements??including the perceived effectiveness of trade liberalization, the degree to which dispute settlement mechanisms are easy to use, and the political and international influence of the agreement. Bayesian factor analysis allows us to extract a principal dimension of effectiveness.     

Trade at the margin: Estimating the economic implications of preferential trade agreements

Preferential Trade Agreements (PTAs) have become the most prevalent form of international trade liberalization in recent decades, even though it remains far from clear what their effects on economies and their key units, firms, are. This paper evaluates the distributional consequences of trade liberalization within industries differentiating two distinct aspects in which trade liberalization could result in higher trade flows: the intensive vs. the extensive margin of trade. In particular, we analyze whether trade liberalization leads to increased trade flows because either firms trade more volume in products they have already traded before (intensive margin) or because they start to trade products they have not traded previously (extensive margin), or both. We test these arguments for the Dominican Republic–Central America–United States Free Trade Agreement (CAFTA-DR) and exporting firms based in Costa Rica for the time-period 2008–2014. The results of our study suggest that the effects of CAFTA-DR depend not only on whether we analyze the extensive versus the intensive margin of trade but also whether the product in question is homogenous or differentiated and whether the exporting firm under analysis is small or large. In particular, we find support for the theoretical expectation that firms exporting heterogeneous products, such as textiles, gain from trade agreements, such as CAFTA-DR, in that they can export more varieties of their products. Yet at the same time, they tend to lose at the intensive margin by a reduction in their trade volume while the opposite pattern occurs for firms exporting homogenous products.     

What Kinds of Trade Liberalization Agreements Do People in Developing Countries Want?

One of the most striking developments in the global economy in the past decades is the rapid proliferation of preferential trade agreements (PTAs), with many of them concluded among or with participation of developing countries. On the presumption that current popular debates on trade policy are not so much about whether citizens want free trade but rather what kinds of trade liberalization they want, we examine individual trade policy preferences with regard to PTAs that can vary in content along several dimensions. To that end we carried out conjoint choice experiments embedded in representative surveys in three developing countries that differ strongly in income levels, political system, and trade liberalization history: Costa Rica, Nicaragua, and Vietnam. We conceptualize trade policy preferences as preferences over the scale and scope of trade liberalization, environmental and labor standards, and labor market access (migration). Two main findings emerge. First, non-economic considerations, such as sympathy/antipathy toward particular countries and environmental and labor rights concerns influence citizens’ preferences at least as much as factors based on standard economic logic. Second, preferences over particular facets (attributes) of trade liberalization, that is PTA content, are surprisingly consistent across countries, despite strong differences in macro-economic and political context.     

Trade and investment: Introduction to the special issue

This special issue focuses on a variety of political-economy questions on trade and investment and is guided by a shared understanding that trade and investment processes can no longer be studied in isolation from each other. Three articles provide new insights into the study of the design of preferential trade agreements and effects thereof, two of which focus on the politically salient issues of non-trade concerns. A third one investigates which export sectors win from improved market access opportunities, in order words, how gains from trade are distributed. Two articles study the World Trade Organization’s dispute settlement system. One contribution is unpacking the role of the most important and influential firms and investors in affecting US behavior in WTO disputes, a second contribution studies how leadership changes in democracies and autocracies have different effects on dispute behavior. Finally, the special issue includes a new study on how the shadow economies in developing states are affected by the integration into the world economy (trade and investment) and by policy programs of the International Monetary Fund.     

Limits to deep integration: Canada between the EU and the US1

Abstract

Twenty-five years ago, as preferential trade agreements started to proliferate, Jagdish Bhagwati sounded the ‘spaghetti bowl’ alarm, arguing that the ensuing complexity would create inefficiencies in the international system and challenges for firms navigating overlapping rules. This article seeks to update and complement Bhagwati’s thesis by asking if proliferating ‘deep’ trade agreements add a new dimension of complexity to this picture. This article shows that the early answer to this question is ‘not yet’, as governments have discovered that prospective conflicts with existing or simultaneous commitments limit just how deep the provisions of an agreement can be. Governments managing multiple deep agreements play a variation on Putnam’s two-level game. As Putnam theorized, these governments reconcile domestic interests with international opportunities in formulating their strategies. However, ensuring compatibility across various, sometimes competing international opportunities is also a key consideration. Canada’s concurrent participation in the Trans-Pacific Partnership (TPP) and the Canada–European Union Comprehensive Economic and Trade Agreement (CETA) provides a crucial exploratory case study.     

The European Union’s trade and investment policy in Asia: new challenges and opportunities in a changing global environment – or: following individual roadmaps

Asia is Europe’s largest trading partner and EU-Asia trade relations have undergone a rapid change since the global financial crisis. On a global scale, the new multilateral trade agreements such as the now stalled Trans-Pacific Partnership (TPP) involving European Unions’ (EU) major trading partners such as Japan, Singapore and Vietnam also have the potential to change the trade equations. In this paper, we evaluate the new EU trade policy which has been designed to ensure that the EU benefits from the changing global trade scenario and also look at the steps which have been taken by the EU to promote trade relations with its major trading partners in Asia in the predicted ‘Asian century’. We look into the Free Trade Agreements, which are being negotiated with its Asian partners and seek to understand the reasons which have resulted in delays in their signing and negotiations. We evaluate new policies pushed forward by its Asian partners such as the One Belt One Road policy by China and Japan’s policy of securing a large number of trading agreements in the America. Moving ahead, we also shed light on the indirect factors that may influence the success of EU trade negotiations in Asia such as the EU policy on granting China market economy status and the commencement of the ‘Brexit’ process. Lastly, we try to present a list of immediate priorities for EU in Asia, which will ensure that it secures a toehold in trade with the region. All in all, it is shown that the EU has not one and the same approach for all Asian countries but it negotiates flexibly and individually country by country. Because of this “country by country approach” the EU is also not ready to enter into general EU-ASEAN trade negotiations again.     

The Electoral Salience of Trade Policy: Experimental Evidence on the Effects of Welfare and Complexity

Why do some trade policies become electorally salient while others do not? While much of the literature argues that citizens act as a domestic constraint in the formation of trade policy, a general consensus has emerged that trade is most often a nonsalient issue among voters. This poses a paradox. On the one hand, trade models hinge upon voters’ rational self-interest and preferences for varying levels of protectionism to keep their governments accountable. On the other hand, the conditions by which trade becomes salient to these very voters in the first place are both undertheorized and untested. Using experimental evidence, I argue that two dimensions of a trade policy affect the likelihood of that issue becoming electorally salient. First, policies with large welfare effects should be more salient. Second, more complex issues should be less salient because such agreements are more likely to obfuscate an individual’s ability to discern its effects. I find support for my hypotheses that a trade policy’s salience tends to increase with the magnitude of its welfare effects and decrease with its complexity.     

Think globally,buy locally: International agreements and government procurement

Do international treaties constrain national governments? The answer appears to be “yes” when it comes to the use of traditional barriers to trade, such as tariffs. Yet, while many governments have cut tariffs to comply with international agreements, they have often raised non-tariff barriers in their place. One increasingly prominent non-tariff barrier is discrimination in public procurement. Governments frequently discriminate against foreign suppliers in favor of domestic ones when buying goods and services. In an attempt to reduce procurement discrimination, international organizations, such as the World Trade Organization, have devoted ever more attention to members’ procurement practices. Additionally, a growing number of preferential trade agreements seek to regulate public procurement. It remains unclear, however, whether international rules are effective in changing governments’ purchasing behavior. Using original data, we find that neither multilateral nor preferential procurement agreements substantially reduce governments’ propensity to “buy national.” These results illustrate the difficulty of regulating non-transparent policy areas via international treaties.     

‘We care about you,but …’: the politics of EU trade policy and development

The European Union (EU) is one of the most important markets for developing countries, and trade policy has long been one of its most important instruments for promoting development. There is, however, a paradox at the heart of the relationship between the EU's trade policy and development. On the one hand the EU's trade as development policy has undergone a paradigm shift, the objective shifting from supporting the former colonies of the EU's member states to addressing poverty and with a greater emphasis on reciprocal liberalization. On the other hand, the EU's conventional trade policy initiatives—particularly its market access objectives in the Doha Round and in commercially motivated bilateral trade agreements—have adverse consequences for developing countries, as does its tendency to adopt stringent product regulations. We argue that this paradox is explained by differences in how much traction the emphasis on the development implications of trade has had in the EU's various trade policy subsystems.