Deep Agreements and Global Value Ch ains
Abstract:
Preferenti
al Trade Agreements (PTAs) are becoming a prominent feature of the world tr
ading system. These agreements have increased in number and in depth -PTAs
often encompass a set of disciplines that go beyond traditional trade polic
y such as tariffs to include investment, competition, intellectual property
protection and other border and behind the border measures. 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). W
e exploit a new dataset on the content of PTAs and data on trade in value a
dded and in parts and components to quantify the impact of deep PTAs on bil
ateral cross-border production linkages. We show that adding a provision to
a PTA increases re-exported value added (forward GVC linkages) and foreign
value added (backward GVC linkages) by 0.4 and 0.26 percent, respectively.
On a larger sample of countries and years, our results confirm that adding
a provision to the PTA increases trade in parts and components by 1.5 perc
ent. The content of PTAs also matters for GVC integration but the impact va
ries by income group. Provisions outside the current WTO mandate (e.g. inve
stment, competition policy) drive the effect of deep PTAs on value added tr
ade and on North-South trade in parts and components. Provisions under the
current WTO mandate (e.g. tariff reduction) drive the effect of deep PTAs o
n South-South trade in parts and components.