Anticipating exclusion: Global supply chains and Chinese business responses to the Trans-Pacific Partnership

Abstract

Preferential trade agreements (PTAs) promise exclusive access for their members at the expense of excluded parties. But what does this exclusivity mean for firms in nonmember states if production networks are internationally organized? This paper analyzes the effect of PTA exclusion on firms embedded in the global supply chains, focusing on the case of China's exclusion from the Trans-Pacific Partnership (TPP). Drawing on a survey of Chinese firm managers during the TPP negotiations, we find that productive and downstream firms anticipated the exclusion and made adjustments accordingly, which led to a general sense of optimism toward the agreement. When presented with the prospect of an expanded TPP, however, firms are divided depending on how their own positions in the global supply chain complement or compete with the new member. These findings, validated with interviews in the field, suggest that the effects of PTA exclusion depend on the ability and need for firms to adjust. As a result, exclusion does not equate to an unalloyed loss for excluded firms.

Labor upgrading and export market opportunities: Evidence from Vietnam

“…Moreover, some trade agreements often offer a phase‐in or grace period, so that the returns to compliance in the present (or the penalties for non‐compliance) may be slow to manifest. Furthermore, identifying a counterfactual for PTA‐induced improvements is complicated by the effects of PTAs, via global supply chain and contracting relationships, upon the behavior of firms in non‐member countries (Gulotty & Li, 2020).…”

WTO Subsidy Disciplines

“…Joining the WTO meant gaining a more permanent access to American markets, allowing firms to invest and expand trade, without worrying about the sorts of incidents that, in the past, prevented China's full membership (Handley and Limão, 2017). As seen in Figure 2a and b, this rise in trade occurs prior to accession, as firms in China are reorienting their supply chain to take advantage of new markets (Gulotty and Li, 2020).…”

“… 2 There is also a question as to whether the largest and most productive firms can use surveillance systems to retrench their market position (Gulotty, 2020). …”

“… 13 As Gulotty and Li (2020) point out regarding the anticipation of the Trans-Pacific Partnership, even private firms do need not wait for government guidance to react to geopolitical events.…”

“… 14 This motive is akin to what Gulotty and Li (2020) terms entangled mercantilism, where presence of multinationals can encourage the use of regulatory barriers at the expense of unconnected enterprises.…”