A recently published eBook sheds light on the influence of trade agreements on non-trade-related aspects. The eBook delves into whether these agreements successfully achieve their intended objectives. While there are notable successes in certain areas, there are also limitations, particularly concerning social outcomes such as child labor.
Over the past three decades, preferential trade agreements (PTAs) have played a significant role in shaping global trade relations, with their number growing from less than 50 in 1990 to approximately 350 today. These agreements, often termed ‘deep,’ have expanded in scope, encompassing a wide range of policy areas and requiring more rigorous commitments. Empirical studies have examined their impact on trade flows and relationships between member and non-member countries.
A collaborative effort between CEPR and the World Bank has resulted in a new eBook (Fernandes et al. 2023) that compiles research on the effects of trade agreements on various non-trade outcomes. These encompass diverse domains, including foreign direct investment (FDI), innovation, policy stability, labor standards, environmental quality, and political rights. While trade agreements inherently influence non-trade outcomes by virtue of boosting trade and market access, the eBook delves deeper into whether specific non-trade provisions within PTAs have direct impacts on these outcomes.
The eBook draws on data from the World Bank’s Deep Trade Agreements Database, introduced by Mattoo et al. (2020), to explore how non-trade disciplines within PTAs affect non-trade outcomes. In recent times, PTAs, especially those involving advanced economies like the EU and the US with developing nations, have increasingly incorporated provisions addressing non-trade issues. The reasons behind this shift range from evolving trade dynamics to the growing influence of labor rights and environmental concerns in trade negotiations. Despite this trend, there remains limited understanding of the effectiveness of these non-trade provisions.
The analysis in the eBook yields four key findings:
1. Intended and Unintended Consequences: Non-trade provisions within PTAs do promote integration beyond trade, impacting the movement of capital and people across member countries. For instance, investment provisions significantly benefit FDI flows. However, there can also be unintended consequences, as seen in the case of child labor standards, where bans can paradoxically increase child labor in some instances.
2. Design Matters: The design of non-trade provisions matters. Some disciplines are more effective when they go beyond minimum standards, such as intellectual property rights (IPR) provisions that encourage technology transfer through stronger protection. Simplicity is not always ideal, and overly complex provisions can have adverse effects, as demonstrated by certain investment provisions that impose high compliance costs.
3. Legal Enforceability: Legally binding disciplines are critical in changing current and expected policies. For instance, environmental provisions without formal dispute settlement mechanisms can lead to deteriorating environmental quality. Legal enforceability varies across policy areas, with IPR and investment disciplines being more enforceable than those in areas like environment and labor.
4. Heterogeneous Effects: The effects of non-trade provisions are not uniform and depend on factors like the countries involved and the power dynamics among members. Some countries benefit more from PTAs with specific provisions, while the effects can vary when destination countries have different political landscapes.
5. Complementarities: The overall content of a PTA and other policies in place in member countries influence the effects of non-trade provisions. There are complementarities between investment provisions and provisions in areas like labor markets, exports, taxes, and state-owned enterprises. Policy instruments, such as development assistance, can also play a role in implementing non-trade provisions effectively.
In conclusion, the eBook offers a valuable empirical assessment of the impact of non-trade provisions in PTAs on various non-trade outcomes. While successes are evident in some areas, challenges remain, particularly in regulating non-trade policy areas within trade agreements. As governments increasingly expand their trade policy agendas to address diverse objectives, this research provides a foundation for further exploration and analysis in this evolving landscape.
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