Third-Country Effects of Regional Trade Agreements: A Firm-Level Analysis

Abstract

Do regional trade agreements negatively impact non-members? This paper revisits this long-standing trade policy question using firm-level data and detailed information on the content of trade agreements. Differently from the conventional view on trade diversion, the analysis identifies a positive spillover effect of regional trade agreements: they increase the probability of export and entry of third-country firms that previously exported to one of the member countries. This spillover effect is driven by deeper trade agreements, as they make member countries more "similar" in terms of the regulatory environment. Indeed, firms exporting regulation-intensive products benefit disproportionately more from deep trade agreements in destination markets, especially if the agreement includes nondiscriminatory provisions and addresses regulatory issues. (A. Mulabdic), mruta@worldbank.org (M. Ruta) 2 The data provide information on the content of all RTAs in force and notified to the WTO in the period of analysis (Hofmann, Osnago, and Ruta, 2017).

Containing Chinese State-Owned Enterprises?: The Role of Deep Trade Agreements

“…5 Second, this paper contributes to the empirical literature on the effects of trade agreements (Limão, 2016) and particularly to the growing literature on deep trade agreements which highlights the importance of disciplines that go beyond tariffs (Mattoo et al, 2017;Osnago et al, 2016;Orefice and Rocha, 2013). Our work relates most closely to the literature studying the effect of RTAs on third countries (Fugazza and Nicita, 2013;Dai et al, 2014;Lee et al, 2019;Fontagne et al, 2020). Differently from other studies, this paper analyzes a specific spillover effect created by the rules regulating state intervention.…”

Deep trade agreements and trade costs

“…These findings can be connected to several well‐established theories in the literature. In particular, they can be connected to theories that imply “reverse trade diversion” as in Baldwin, (2011) or Mattoo et al (2022); spillover effect of trade agreements as in Lee et al (2019, 2021). The results of this paper are consistent with these arguments and provide strong empirical evidence from the non‐tariff costs perspective.…”

“…Mattoo et al (2022) find that some provisions of deep trade agreements may improve the conditions of access in a non‐discriminatory manner and hence increase trade also with non‐members. Lee et al (2019) find that deep trade agreements can make member countries more similar in terms of the regulatory environment, thus reducing entry costs and increasing export in third countries. Complementing these works, this paper provides supportive evidence for reverse trade diversion from the trade costs perspective.…”

Geo-Economic Fragmentation and the Future of Multilateralism

“…Similarly, "deep" Regional Trade Agreements (RTAs) have contributed to reducing trade costs and regulating frontier issues ranging from foreign investment to state-owned enterprises (SOEs) (see Annex 2 for details). By focusing negotiations on reforming behind-the-border provisions that are non-discriminatory, deep RTAs can help support multilateral integration (Mattoo, Mulabdic, andRuta 2022, Lee, Mulabdic, and. 20 Agreements covered fisheries subsidies -the first multilateral agreement concluded at the WTO since 2013; a Ministerial Declaration on the pandemic response; the exemption of World Food Program purchases from export restrictions; and the start of an institutional reform process.…”