Political Trade Dependence and North-South Trade Agreements

Abstract

Why do developing countries negotiate North-South trade agreements, when they already enjoy preferential market access to developed-country markets? Most developing countries benefit from the generalized system of preferences (GSP) and related schemes when they export to the United States, the EU, and other developed economies. And yet, many pursue fully reciprocal agreements that require major concessions to the developed partner. We argue that this is due to the nature of the GSP as a unilateral concession that can be (and often is) taken away. High dependence on unilateral, removable preferences generates "political trade dependence" (PTD). We distinguish PTD from standard measures of trade dependence, and we explain why PTD motivates developing countries to seek North-South Regional Trade Agreements (RTAs). We show the effects of PTD with a selection of illustrative cases and test our hypothesis on a data set of EU and US trade agreements with developing countries. We find robust statistical support for our hypothesis that high and rising levels of PTD make the negotiation of a North-South RTA more likely.2 GATT Art. 24, which establishes the legal groundwork for bilateral trade agreements, requires the elimination of duties "with respect to substantially all the trade." Most observers refer to reciprocal preferential trade agreements as "preferential trade agreements." However, to make a clear distinction between preferential programs such as the GSP and reciprocal trade agreements under Art. 24 of the GATT, we refer to the latter as "regional trade agreements" in line with WTO terminology-even though we are clearly not referring to regions in a geographical sense.International Studies Quarterly (2014) 58, 79-91

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