ESSAYS ON PREFERENTIAL TRADE AGREEMENTS

Preferential Trade Agreements (PTAs) are a prominent feature of current globalization. Over the last decades, country participation in PTAs has become widespread, with each member of the World Trade Organization having signed an average of 10 PTAs, up from 3 PTAs in 1990. Most importantly, the proliferation of PTAs was accompanied by a significant deepening of their scope. Their content now spans diverse behind-the-border disciplines, such as investment, technical barriers to trade (TBT), sanitary and phytosanitary (SPS) measures , intellectual property rights, visa and asylum, labor market laws and environmental regulations. In order to quantify the impacts of the provisions included in PTAs on various outcomes of interest, such as gross trade, foreign direct investment (FDI), global value chains, quality, and so on, trade economists face several empirical obstacles to model Non-Tariff Measures (NTMs). While it is straightforward to model provision, such as an import quota or an export tax with an ad-valorem tariff equivalent, this technique is not suitable for other provisions that do not purely deal with market access. Many NTMs are implemented to address behind-the-border issues rather than to discriminate against foreign businesses. Therefore, it would be misleading to restrict the effect of certain trade policies to their market access dimension only. The objective of this dissertation is two-fold: it is, first, to understand the impacts of the overall content of PTAs on economic outcomes and, second, to shed light on the relationships of specific disciplines included in PTAs with those outcomes. In the first chapter, I review the recent evolution of trade and investment integration and how the content of PTAs has been reshaped over the years. The second and third chapters are dedicated to the analysis of two of the most frequent provisions in PTAs — TBT and SPS provisions. In the theoretical part, I augment the structure of the traditional Melitz model to assess the impact on quality of such provisions. I model TBT/SPS measures as domestic regulations ensuring minimum quality of goods. By integrating these regulations, PTAs change the economic struc- ture of the model (with respect to minimum quality enforcement) from segmented to joint markets. I highlight two potential channels to explain the change in quality of exported goods following the enforcement of a PTA with TBT/SPS provisions. The first channel for quality improvement is driven by the increase in market size. With larger markets to export to, firms have the incentive to differentiate vertically their products in order to capture bigger shares. The second channel depends on the type of provisions implemented. I consider two cases, mutual recognition ver- sus harmonization of TBT/SPS measures. The ultimate impact on quality of this regulatory channel depends on the new reference for minimum quality once a PTA is signed. Then, I empirically test the importance of these two channels using new data on the content of PTAs and estimates of the quality of imported goods. I find that mutual recognition positively impacts quality relatively more than harmoniza- tion. This result is driven by PTAs between developed and developing countries. The effect is heterogenous across sectors, with bigger impact of deep PTAs on goods that have a wider scope for quality differentiation. Finally, I study the impact of PTAs on FDI and find that deep PTAs promote foreign investments. The impact is bigger for projects related to service activities, as well as North-South investment relationships

Deep trade agreements and global value chains

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