Trade creation, political sensitivity and product exclusions: the political economy of agriculture protection in China’s FTAs*

Abstract

One of the most significant features in Free Trade Agreement (FTA) is that certain products are excluded from tariff concession. Why do some products get more protection in FTAs?In this paper, using the highly disaggregated product-level data in agricultural sector of China's FTAs, we examined and extended the hypothesis developed by Grossman and Helpman (1995), illustrating the products which are more likely to be excluded in FTAs. Our results suggest that, with the involvement of political costs to incumbent government, products which experience trade creation and have more political sensitivity are more likely to be excluded in FTAs. Moreover, we revealed that the Chinese government tend to achieve different goals through negotiation power, seeking more economic benefits from big-trading partners while giving more concession to small-trading partners.

Empirical Analysis of Sustainable Trade Effects of FTAs Based on Augmented Gravity Model: A Case Study of China

“…Harada and Nishitateno (2021) examined the impact of preferential tariff reductions under FTAs on the wine trade in China, Japan, and South Korea [20]. Lyu et al (2021) found that China tends to gain economic benefits from large trading partners and non-economic benefits from concessions to smaller trading partners in FTA negotiations [21]. Haq et al (2021) and Shah et al (2022) analyzed the China-Pakistan FTA (CPFTA) in terms of RCA and the advantages and disadvantages brought about by the FTA, and they found that the CPFTA has generally had a positive effect on China-Pakistan trade [22,23].…”