The political economy of preferential trade agreements

Introduction Over the past 20 years, the global trading system has experienced a set of pronounced and profound changes. The so-called BRIC countries (Brazil, Russia, India and China) have risen in importance, with China now conducting almost as much overseas commerce as the United States does. At the same time, the system has experienced a number of jarring disruptions, most notably the 2008 financial crisis and the accompanying Great Recession, which prompted what one study characterized as ‘the steepest fall of world trade in recorded world history’ (Gawande, Hoekman and Cui 2011: 5). All of this occurred against an institutional backdrop that has changed in important ways as well. In 1995, the World Trade Organization (WTO) replaced the General Agreement on Tariffs and Trade (GATT), a development that was greeted with much fanfare and anticipation. However, the WTO has experienced a series of setbacks, particularly the failure of the Doha Round of multilateral negotiations, which commenced in 2001 and has yet to yield an agreement. But perhaps the most important development in the world trading system has been the rapid proliferation of preferential trade agreements (PTAs), a set of institutions that include free trade agreements, customs unions, common markets and economic unions. Such agreements have dotted the international landscape for centuries, but they have become especially pervasive over the past few decades (Mansfield and Milner 1999; Pahre 2008). In fact, a recent study by the WTO (2011) concludes that, during this time, the number of PTAs increased more than fourfold, and more than 300 agreements of this sort currently exist. This development has stimulated intense interest on the part of social scientists. For more than half a century, researchers have debated the economic and political implications of PTAs, placing particular emphasis on how these agreements affect the welfare of countries and the stability of the multilateral trading system.