Deep trade agreements help countries integrate in high-value added industriesWe also analyse whether the impact of deep trade agreements on GVC integration is heterogeneous across industries. Specifically, we estimate a set of sectoral regressions, including an interaction term between the depth of an agreement and the share of value added that a sector has in overall production. The results suggest that deep trade agreements are particularly relevant for GVC integration in high value-added industries (Figure 2). Not surprisingly, these industries are usually services sectors, which are characterised by non-tangible activities such as research and development or retail services that have high value added.
Figure 2 Marginal effect of additional provision in terms of average share of value added
Source: Laget et al. (2018).
Trade agreements matter to different countries for different reasons Finally, we focus on the larger sample of country data available for trade in parts and components to empirically explore whether the impact of different provisions is heterogeneous across countries with different levels of development. We split the provisions covered in PTAs into two categories, depending on their relationship with WTO rules (Horn et al. 2010).
'WTO plus' provisions fall under the current mandate of the WTO (for example, tariffs and customs) and are already subject to some form of commitment in WTO agreements. 'WTO extra' provisions, on the contrary, refer to policy obligations outside the current mandate of the WTO (for example, investment, competition). The estimates suggest that WTO extra provisions are particularly important for GVC-related trade between North and South countries. On the other hand, WTO plus provisions are still relevant for trade among developing countries (South-South agreements).
Deep agreementsSince the early 1990s, governments have signed progressively deeper trade agreements, and firms have fragmented production internationally. Our research finds that the deepening of the trade arrangements has been a key factor in the rise of global value chains. It has also helped countries to integrate in industries with higher values of production. These results indicate that the reshaping of international trade policy relationships we are observing today may have far-reaching consequences for the organisation of production in the future.
ReferencesBaier, S, Y Yotov, T Zylkin (2017), “One size does not fit all: On the heterogeneous impact of free trade agreements”, VoxEU, 28 April.
Dhingra, S, R Freeman, E Mavroeidi (2018), “Beyond tariff reductions: The effect of deep provisions on gross and value-added trade”, VoxEU, 30 March.
Hofmann, C, A Osnago, M Ruta (2018), “The Content of Preferential Trade Agreements”, forthcoming, World Trade Review.
Horn, H, P C Mavroidis, and A Sapir (2010), “Beyond the WTO? An Anatomy of EU and US Preferential Trade Agreements”, The World Economy 33: 1565-1588.
Laget, E, A Osnago, N Rocha, M Ruta, (2018), “Deep Trade Agreements and Global Value Chains”, World Bank policy research working paper 8491.
Mattoo, A, A Mulabdic, M Ruta (2017), “Deep Trade Agreements As Public Goods”, VoxEU, 12 October.
Mulabdic, A, A Osnago, M Ruta (2017), “Trading off a ’soft’ and ‘hard’ Brexit”, VoxEU, 23 January.
Endnotes[1] See also the related works by Mulabdic et al. (2017) and Swati et al. (2018) that discuss how Brexit will affect UK value chains under different post-Brexit trade arrangements.