Preferential Trade Agreement Policies for Development

Preferential Trade Agreement Policies for Development


536 pages
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Economists have repeatedly warned against them, NGOs have fought them, and some
governments have begrudgingly (at least in appearance) signed them. Yet, in the last twenty
years the growth in number of preferential trade agreements (PTAs) has been unabated. Even
more strikingly, their scope has broadened while their number was increasing. Deep integration
provisions in PTAs have now become ubiquitous.
Gaining market access or preserving existing preferences has remained an important motivation
for acceding to PTAs. But with the liberalization of trade around the world and the related
diminishing size of preferential rents, the growing success of PTAs cannot be only explained by
traditional market access motives (even factoring for the possible substitution of tariff for other
less transparent forms of protection). Countries are looking beyond market access in PTAs. They
are interested in a host of objectives, including importing higher policy standards, strengthening
regional policy coordination, locking-in domestic reforms, and even addressing foreign policy
This handbook on PTA policies for development offers an introduction into the world of modern
preferential trade agreements. It goes beyond the traditional paradigm of trade creation versus
trade diversion to address the economic and legal aspects of the regulatory policies that are
contained in today's PTAs. The book maps the landscape of PTAs, summarizes the theoretical arguments, political economy, and development dimensions of PTAs, and presents the current practice in the main policy areas typically covered in PTAs (from agriculture policy, rules of origin, customs unions, trade remedies, product standards, technical barriers, to behind the border issues related to investment, trade facilitation, competition, government procurement, intellectual property, labor rights, human rights, environment, migration, and dispute resolution). These are also usually the policies driven by powerful trading blocs as they strive to influence the evolution of the global trading system.



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Trade Agreement
for Development
Jean-Pierre Chauff our • Jean-Christophe MaurPREFERENTIAL
Jean-Pierre Chauffour and Jean-Christophe Maur, Editors© 2011 The International Bank for Reconstruction and Development / The World Bank
1818 H Street NW
Washington DC 20433
Telephone: 202-473-1000
All rights reserved
1 2 3 4 :: 14 13 12 11
This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The
findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive
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The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail:
ISBN: 978-0-8213-8643-9
eISBN: 978-0-8213-8644-6
DOI: 10.1596/978-0-8213-8643-9
Library of Congress Cataloging-in-Publication Data.
Preferential trade agreement policies for development : a handbook / Jean-Pierre Chauffour, Jean-Christophe Maur, editors.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-8213-8643-9 — ISBN 978-0-8213-8644-6 (electronic)
1. Developing countries—Commercial policy. 2. Developing countries—Foreign economic relations. 3. Tariff
preferences—Developing countries. 4. Free trade—Developing countries. 5. Economic development—Developing coun-
tries. I. Chauffour, Jean-Pierre. II. Maur, Jean-Christophe. III. World Bank.
HF1413.P69 2011
Cover illustration: Barrie Maguire,
Cover design: Drew FasickCONTENTS
Foreword xi
Acknowledgments xiii
About the Editors and Contributors xv
Abbreviations xvii
Overview 1
Jean-Pierre Chauffour and Jean-Christophe Maur
1 Beyond Market Access 17
Jean-Pierre Chauffour and Jean-Christophe Maur
2 Landscape 37
Rohini Acharya, Jo-Ann Crawford, Maryla Maliszewska, and Christelle Renard
3 Economics 69
Richard Baldwin
4 North-South Preferential Trade Agreements 95
Bernard Hoekman
5 Customs Unions 111
Soamiely Andriamananjara
6 Preferential Trade Agreements and Multilateral Liberalization 121
Richard Baldwin and Caroline Freund
7 Agriculture 143
Tim Josling
8 Preferential Rules of Origin 161
Paul Brenton
9 Trade Remedy Provisions 179
Thomas J. Prusa
10 Product Standards 197
Jean-Christophe Maur and Ben Shepherd
vvi Contents
11 TBT and SPS Measures, in Practice 217
Andrew L. Stoler
12 Services 235
Aaditya Mattoo and Pierre Sauvé
13 Labor Mobility 275
Sherry Stephenson and Gary Hufbauer
14 Investment 307
Sébastien Miroudot
15 Trade Facilitation 327
Jean-Christophe Maur
16 Competition Policy 347
Kamala Dawar and Peter Holmes
17 Government Procurement 367
Kamala Dawar and Simon J. Evenett
18 Intellectual Property Rights 387
Carsten Fink
19 Environment 407
Anuradha R. V.
20 Labor Rights 427
Kimberly Ann Elliott
21 Human Rights 443
Susan Ariel Aaronson
22 Dispute Settlement 467
Amelia Porges
Index 503
2.1 Typology of Preferential Trade Agreements 38
6.1 Is Bilateralism Bad? 123
7.1 The WTO Agreement on Agriculture 146
9.1 Antidumping Template 186
9.2 Countervailing Duties Template 186
9.3 Global Safeguards Template 186
9.4 Bilateral Safeguards Template 187
10.1 What Are Meta-Standards? 198
10.2 Proliferation and Growing Importance of Product Standards 198
10.3 Do Voluntary Standards Have Cost Effects, Too? 201
10.4 Inventory Methods versus Direct Measures of Restrictiveness 203
10.5 Facilitating Market Access: Harmonization, Equivalence, and Mutual Recognition 204Contents vii
10.6 Trade Effects of Harmonization: Empirical Evidence 205
10.7 Tr Mutual Recognition: Empirical Evidence 207
10.8 How Small ASEAN Countries Manage to Access Certification and Accreditation Services 209
10.9 The Codex Alimentarius and Preferential Trade Agreements 213
11.1 WTO Standards and Guidelines on TBT and SPS Measures 218
11.2 Success Story: Orchids to Australia 224
11.3 Impact of SPS Measures in the China-New Zealand PTA 226
11.4 WTO Assessment of TBT Implementation Costs 230
11.5 Using the PTA’s Living Agreement Institutions for Capacity Building: An Example 230
11.6 Dispute Settlement of TBT and SPS Measures in the WTO and within the Andean Community 231
12.1 WTO+ and WTO-Extra Provisions in U.S. and EU PTAs 241
12.2 Harmonization and Mutual Recognition in Services: Promise and Pitfalls 248
12.3 PTAs and Digital Trade 259
12.4 Tourism Liberalization in the EU–CARIFORUM EPA 260
12.5 Cultural Cooperation and Aid for Trade in the EU–CARIFORUM EPA 263
13.1 Labor Mobility in Statistical Terms 277
13.2 Quantitative Estimates of Overall Gains from Greater Labor Mobility 279
14.1 Rules on Investment at the WTO 308
15.1 Definition and Scope of Trade Facilitation in Selected PTAs 328
15.2 Trade Facilitation and the WTO 329
15.3 The Trans-Kalahari Corridor 330
15.4 Mercosur’s Transit and Cross-Border Transport Agreement 339
16.1 Competition Policy and International Cooperation 356
17.1 Persistence of Discrimination: Procurement Practices and the Global Economic Crisis 369
17.2 Three International Government Procurement Instruments 372
17.3 Examples of Flexible Provisions in Government Procurement PTAs 375
18.1 Patent-Registration Linkage and Test Data Protection: The Case of Chile 394
19.1 Considerations for Developing Countries in Negotiating PTAs 412
20.1 Sweatshop Scandal Insurance for Brand-Name Buyers 429
20.2 Labor Rights and the WTO 430
20.3 NAFTA as a Tool for Promoting Rights of Mexican Migrants in the United States 438
20.4 Responding to a Sweatshop Scandal through Capacity Building and Monitoring 439
21.1 Transparency, Due Process, and Democracy Spillovers from the WTO 448
22.1 The Protocol of Olivos 482
1.1 Most Favored Nation (MFN) Tariff Rates, Weighted Mean, All Products 20
2.1 Total PTA Notifications Received by the World Trade Organization, by Year, 1949–2009 40
2.2 All PTAs Notified to the GATT/WTO, by Year of Entry into Force, 1949–2009 40
2.3 PTAs Notified to the GATT/WTO and in Force, by Year of Entry into Force, 1959–2009 41
2.4 PTAs NTT (Pre-1995) and the WTO (Post-1995), by Legal Provision 41
2.5 Evolution of Notified PTAs in Force, by Type of Partner, 1958–2009 43
2.6 Number of PTAs under Negotiation and Signed, by Type of Partner, as of February 2010 43
2.7 Bilateral versus Plurilateral PTAs Notified to the GATT/WTO 44
2.8 Cross-Regional and Intraregional PTAs Notified to the GATT/WTO 44
2.9 PTAs, by Region and by Year of Entry into Force, 2000–09 45
2.10 PTAs in Force and under Negotiation, by Region 46
2.11 PTAs in Forcegotiation by Selected Countries and Groupings, as of February 2010 46
2.12 Issues Covered in Regional Trade Agreements, 1989–2009 47
2.13 Participation in Notified PTAs as of February 2010 (Goods) 49
2.14 Partotified EIAs as of February 2010 (Services) 50
2.15 Network of Plurilateral Groupings in Europe and Central Asia 51
2.16 Network of Plurilateral Grs in the Americas and the Caribbean 52
2.17 Network of Plurilateral Groupings in South Asia, East Asia, and the Pacific 53
2.18 Network of Plurilateral Grs in Africa and the Middle East 54viii Contents
2.19 Evolution of the Share of Intra-PTA Imports in Total Imports, 1970–2008 58
2.20 Eve of Intraregional Trade in Gross Domestic Product, 1970–2008 60
2.21 Most Favored Nation Applied Tariffs, Trade-Weighted Average of All PTA Members Selected Periods 62
2.22 Proportion of Tariff-Free Imports as a Share of Total Imports, All Goods, Selected PTAs and Periods 62
2.23 Percentage Changes in Trade from Entry into Force of a Preferential Trade Agreement to 2008,
Based on Gravity Model Estimates 63
3.1 Trade Pattern for a Simple Preferential Trade Association 70
3.2 Trading Equilibriums in a Preferrade A 71
3.3 Ambiguous Net Welfare Effects 72
3.4 Effects of Preferential Frictional Barrier Liberalization on Prices and Imports 73
3.5 Welfare Effects of Preferential TBT Liberalization: Viner’s Ambiguity Vanishes 73
3.6 Competition (COMP) and Break-Even (BE) Curves 74
3.7 Prices, Output, and Equilibrium Firm Size in a Closed Economy 75
3.8 Prices,m Size with Integration 77
3.9 Welfare Effects of Complete Liberalization 78
3.10 Demand-Linked Circular Causality 79
3.11 Input-Cost-Linked Ciry 80
3.12 Locational Equilibrium Diagram 81
3.13 Loiram with Trade Liberalization 82
3.14 Trade Arrangements and Industrialization 82
3.15 Location of Japanese Auto and Electrical Machinery Plants in East Asia, 1975–2004 85
3A.1 Johnson’s Diagram, Small Home and Partner Countries 87
3A.2 The Small PTA Diagram: A Simple Case 88
3B.1 Monopoly Profit Maximization 90
3B.2 Duopolist as Monopolist on Residual Demand: Example of a Nonequilibrium 91
3B.3 Duopoly and Oligopoly: Expectation-Consistent Outputs 91
6.1 Net Welfare Effects, Preferential Trade Agreement to Global Free Trade 125
6.2 Relationship between MFN Tariffs and Home Welfare 125
6.3 Juggernaut Logic 127
6.4 Juggernaut Building Block Logic 128
6.5 Imported MFN Liberalization 131
6.6 An Economic Theory of the GATT 132
8.1 Restrictiveness (R-Index) of Rules of Origin in Free Trade Agreements 171
9.1 Hub-and-Spoke and Cross-Regional Arrangement of PTAs 188
9.2 Intra-PTA Antidumping Filings, Sample of 74 PTAs 194
10.1 Elements of a Standards Infrastructure 200
12.1 Services-Related PTAs as a Share of Total PTA Notifications to the WTO, 2010 236
12.2 Services-Related PTAs Notified to the WTO, by Country Group 236
12.3 Sectoral Coverage of PTAs and of GATS Offers and Schedules, Selected Countries 257
12.4 GATS+ Advances in East Asian PTAs with Services Provisions, by Sector 261
12.5 GATS+ AdvancAAs wvices Prov by Mode 262
12A.1 GATS and EU–CARIFORUM Commitments Compared: Barbados 266
12A.2 GATommitompared: Dominican Republic 267
12A.3 GATUM Commitments Compared: Jamaica 268
12A.4 GATommitompared: Trinidad and Tobago 269
13.1 Theoretical Gains from Liberalization of Mode 4 278
13.2etical Effect on Developed Countries of Liberalization of Mode 4 279
13.3 Theorveloping Countries of Liber Mode 4 279
13A.1 Provisions on Mode 4 in PTAs between the United States and Developing Countries 300
13A.2 ProvoAeen Canada and Developing Countries 301
13A.3 Provisions on Mode 4 in PTAs between the European Union (EU) and Developing Countries 302
13A.4 ProvoAeen Japan and Developing Countries 302
13A.5 Provisions on Mode 4 in PTAs between Australia and New Zealand and Developing Countries 303
13A.6 ProvoAeen Developed and Developing Countries 304
14.1 Total Number of PTAs and Number with Investment Provisions, 1970–2009 308
17.1 PTAs Containing Government Procurement Provisions, 2009 371