Preferential Trade Agreements: Benefits and Risks

Opinion article by: Manuela Ramírez Cardenas* (mramir67@eafit.edu.co)
International Business and Political Sciences student at Universidad EAFIT, Colombia

The World Trade Organization’s report on the Future ofTrade (2013)  states that one of the dominant policy trends regarding that issue is the rising number of preferential trade agreements (PTAs). A PTA is an agreement between two or more countries, where they pact to reduce tariffs on specific goods during trade with one another. As stated in the report, there are currently an estimated 300 PTAs in operation, while several others are in negotiation; almost half of them are cross regional, two thirds are between developing and developed countries, and half of them are bilateral.

According to the WTO, preferential trade agreements offer several advantages that benefit not only their signatories but also other countries by the promotion of growth. PTA’s also facilitate a deeper integration at a multilateral level, are often more time efficient, and can reach consensus more easily between countries, a process that is otherwise difficult and time consuming at the WTO.

Not only that, but PTAs can have a positive impact in a country not purely in an economic sense. Other aspects of civil life can also benefit from them, ranging from issues such as the regulation of the environment to the protection of the labor force, for example: Professor Emilie M. Hafner-Burton, PhD, found that the commitment to PTA’s with hard human rights standards could effectively help reduce government repression and lead to better practices, as a state that participates in this type of agreement must comply with some basic international human rights principles.

Although the increasing number of PTAs is a trend that probably won’t slow down in the upcoming years, and that the benefits of this type of agreements cannot be denied, it is important to understand that there are risks inherent to them. According to the report, PTAs can have a negative impact as they might increase trade costs, lead to the segmentation of the economy due to regulatory divergence, they can be exclusionary as they might ignore smaller countries in a discriminatory way, they could fracture trade relations and ultimately they could corrupt the non-discriminating principle that is a core principle of the WTO.

To actually take advantage of the possible benefits of PTAs, the WTO recommends their members to engage in the exploration and ways of consolidation of PTAs within a multilateral trading system. By consolidating PTAS within the multilateral trading system, it is possible to regulate these types of agreements, mitigate the risks inherent to them and prevent the use of discriminatory practices regarding the exercise of trade.

References

World Trade Organization. (2013). The Future of Trade: The Challenges of Convergence. Report of the Panelon Defining the Future of Trade.

Hafner-Burton, Emilie M. (2005). Trading Human Rights: How Preferential Trade Agreements Influence Government Repression. Cambridge University Press on behalf of the International Organization Foundation, 59 (3), 593-629.