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Not all PTAs are Equal: Credible Commitment through PTAs and their Effects on Trade

Not all PTAs are Equal: Credible Commitment through PTAs and their Effects on Trade. Raymond Hicks Soo Yeon Kim Princeton University University of Maryland. Question: How do PTAs affect trade among participants?. Focus: Are the effects of PTAs homogeneous?.

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Not all PTAs are Equal: Credible Commitment through PTAs and their Effects on Trade

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  1. Not all PTAs are Equal:Credible Commitment through PTAs and their Effects on Trade Raymond Hicks Soo Yeon Kim Princeton University University of Maryland

  2. Question: How do PTAs affect trade among participants? Focus: Are the effects of PTAs homogeneous?

  3. Argument: PTAs signal credible commitment to trade liberalization PTAs differ in the level of credibility embedded in their provisions PTAs therefore differ in their effect on trade as a function of these provisions

  4. Coding RTAs and Levels of Credibility:Weighted index 5 categories, 19 components • Type of RTA • Breadth of Coverage • Depth of Coverage • Pace of Change • Ratification and Withdrawal

  5. Overview:57 RTAs in Asia, 1970-2006 • Timing: higher scores for post-1995 RTAs • Higher scores for FTAs vs. PTAs • Higher scores for bilateral vs. multilateral agreements • Country differences: more developed countries (Japan, Singapore, Korea) have higher credibility scores

  6. Quantitative Analysis: • Unit of analysis: directed-dyad year • Sample: dyads with at least one Asian country • Dependent variable: imports (in constant US dollars, 2000) of country i from country j in a given year • Independent variable of interest: dummy and continuous measures for RTA • Control variables: GDP, GDP per capita, land size, border, distance, language, colonial ties

  7. Findings:RTAs and Trade, 1970-2003

  8. Figure 1: RTA Signing vs. RTA Credibility

  9. Conclusions: • RTAs differ in the levels of credibility embodied in their provisions • Analysis of RTAs in Asia shows that RTA signing and RTA credibility differ in their effect on trade for participants. • Surge in RTAs in recent years may lead to “crowding” in the Asian region, which may dilute their trade-creation effects.

  10. Future Modifications for RTA Data • Rules of origin requirements • Percentage of value content? • Tariff classification change? • Withdrawal • Longer time until withdraw takes effect = more credibility?

  11. Thank you!

  12. Backup slides

  13. RTA credibility index, part 1 • Type of RTA proposed – level of integration in the agreement (weight = 0.20) • Breadth of coverage – restrictions on actions of government (weight = 0.175) • Tariff reductions reciprocal (0.025) • Agriculture products covered (0.025) • Industrial products covered (0.025) • NTBs covered (0.05) • Technical barriers to trade (0.05)

  14. RTA credibility index, part 2 • Depth of coverage – stringency of enforcement mechanisms (weight = 0.45) • Dispute settlement (0.075) • Dispute settlement resolution (0.025) • Dispute settlement compensation (0.05) • Escape clause identification (0.075) • Escape clause action (0.05) • Dumping clauses (0.075) • Formal institutions (0.05) • Timing of meetings (0.05)

  15. RTA credibility index, part 3 • Pace of change – speed of movement to final objective (weight = 0.10) • Timetable (weight = 0.025) • Extent of initial tariff cuts (weight = 0.075) • Administration – operation of the agreement (weight = 0.075) • Ratification (weight =0.025) • Renewal (weight =0.025) • Amendment (weight =0.025)

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