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 Chains: New Evidence from China’s Belt and Road Initiative

“…This paper contributes to the current literature on trade agreements and GVCs such as [9,14,19] in several ways. First, this paper focuses on the links between China's trade agreements and OBOR initiative.…”

“…Researchers and policy makers as well as the general public have been interested in whether the deepening TAs can boost the participation, integration and upgrade of partner countries in GVCs [19] find that a trade agreement with one more policy area can significantly increase the domestic and foreign value added of intermediates as suppliers with forward and backward global value chain linkages respectively. Thus, they suggest that in regional and global production processes, policymakers can use TAs to anchor national producers.…”

Trade Integration as a Pathway to Development?

“…Deep agreements, covering a larger number of policy areas, have been shown to lead to more trade creation and less trade diversion than shallow agreements (Mattoo et al 2017). They are also associated with more trade related to global value chains (Laget et al 2018;Orefice and Rocha 2014). And they influence the way firms internationalize, leading to more foreign direct investment in suppliers and distributors (Osnago et al 2017;Osnago et al 2019).…”

Angola Country Economic Memorandum

“…Angola is part of several regional integration initiatives 72 , which are at different stages of effectiveness. Recent evidence seems to suggest that preferential trade agreements (PTAs), ideally negotiated as a regional block, can be an important stepping stone for insertion into global value chains and economic diversification (see Laget et al 2018). Trade agreements that go beyond simple tariff cutting and that involve legal commitments on laws and regulations have been found to be particularly relevant for facilitating entry into global value chains and stimulating economic diversification.…”