Deep Trade Agreements and Global Value Chains

Abstract

Preferential Trade Agreements (PTAs) have become deeper over time, often encompassing a set of disciplines that go beyond traditional trade policy such as investment, competition, and intellectual property rights protection. In the policy and theory literature, a prominent argument why countries sign "deep" PTAs is to promote and facilitate the operation of Global Value Chains (GVCs). This paper exploits a new dataset on the content of PTAs and data on trade in value added and in parts and components to quantify the impact of deep trade agreements on bilateral cross-border production linkages. Results show that the positive impact of deep trade agreements on GVC integration is driven by value added trade in intermediate rather than in final goods and services. Adding a policy area to a PTA increases domestic value added of intermediates (forward GVC linkages) and foreign value added of intermediates (backward GVC linkages) by 0.48 and 0.38 percent, respectively. At the sectoral level, the positive impact of deep PTAs is higher for higher value-added services suggesting that deep agreements help countries to integrate in industries with higher levels of value added. On a larger sample of countries and years, results confirm that adding a provision to a PTA increases bilateral trade in parts and components by 0.3 percent. The content of PTAs also matters for GVC integration, but the impact varies by income group. Provisions outside the current WTO mandate (e.g. investment, competition policy) drive the effect of deep PTAs on value added trade and on North-South trade in parts and components. Provisions under the current WTO mandate (e.g. tariff reduction, customs facilitation) drive the effect of deep PTAs on South-South trade in parts and components.

Trade agreements and Global Value Chain (GVC) participation: Evidence from Chinese industries

“…In this section, we build on previous literature on the economic welfare implications of PTAs (Viner, 1950; Frankel & Wei, 1996; Krueger, 1999; Limão, 2006; Baier & Bergstrand, 2007; Goldstein, Rivers, & Tomz, 2007; Bhagwati, 2008; Magee, 2008; Yarbrough & Yarbrough, 1992) and more recent studies of the effect of PTA design on trade flows (e.g., Dür et al, 2014; Laget et al, 2018) to suggest several reasons why the signing of PTAs and the variation in the depth of these agreements should matter for GVC participation.…”

“…Whether PTAs with deep provisions may be more effective in boosting trade, including value‐added trade, has more recently received some scholarly attention. Research in this stream (e.g., Osnago, Rocha, & Ruta, 2017; Ornelas, Turner, & Bickwit, 2018) highlights in particular the importance of deeper forms of integration for addressing cross‐border policy spillovers and time‐inconsistency problems arising from the fragmentation of production across national borders, finding that PTAs with more rigorous provisions regarding the rules of origin (RoOs) or behind‐the‐border issues are more likely to facilitate the expansion of trade flows (Dür, Baccini, & Elsig, 2014; Estevadeordal & Suominen, 2005; Orefice & Rocha, 2014; World Trade Report, 2011) or lead to increases in both bilateral parts and components trade and re‐exported value added (Laget, Osnago, Rocha, & Ruta, 2018).…”

“…In emphasizing the nexus between PTAs and GVC integration, we follow the lead of a large body of research (e.g., Baier & Bergstrand, 2007; Egger, Larch, Staub, & Winkelmann, 2011) that highlights the role of PTAs in boosting trade. However, not only has the impact of PTAs on GVC trade only more recently received some scholarly attention (Orefice & Rocha, 2014; Laget et al, 2018), we also know relatively little about the pathways through which PTAs boost GVC integration. Our research addresses this lacuna in the literature by both quantifying the impact of PTAs on GVC integration and exploring the mechanisms through which PTAs promote GVC trade.…”

Do Trade Agreements with Labor Provisions Matter for Emerging and Developing Economies’ Exports?

“…"deep" trade agreements (Orefice and Rocha, 2014;Kohl et al, 2016;Osnago et al, 2017;Ahcar and Siroën, 2019;Osnago et al, 2019;Boffa et al, 2019;Brandi et al, 2020;Heid and Vozzo, 2020;Laget et al, 2020), by expanding the understanding of the impact of trade agreements with labor provisions on trade flows. Second, by taking a more finegrained approach and using sectoral trade data, our contribution speaks to the literature on the impacts of trade agreements on trade.…”

Fostering global value chains through international agreements: Evidence from Vietnam

“…One way leaders of developing countries have sought to make their states more attractive to GVC activity has been to focus on negotiating “deep” bilateral or multilateral agreements, such as preferential trade arrangements (PTAs) or bilateral investment treaties (BITs) with developed countries (Milberg & Winkler, 2013; Laget, Osnago, Rocha, & Ruta, 2018), which cover a wide range of topics beyond just tariffs and trade, such as commercial arbitration, regulations, competition law, and intellectual property rights, and thus require significant adaptation by the participating countries. Because they are so wide‐ranging, however, disagreements exist about what exactly the benefits are for developing countries of committing to these deep international agreements.…”