You’ll see the terms preferential trade agreements, trade agreements, regional trade agreements, and bilateral trade agreements.
See the terms preferential trade agreements, trade agreements
Some important notes before getting into the readings:
1. You’ll see the terms preferential trade agreements, trade agreements, regional trade agreements, and bilateral trade agreements.
a. They all stand for the same thing, a treaty between two (in the case of bilateral agreements) or many (in the case of regional trade agreements like the EU) that drop trade barriers for signatories but not non-signatories.
2. Why don’t trade agreements violate the rules of reciprocity in the WTO?
a. Reciprocity means that state that a country may not restrict trade against another member and must offer to all partners what it offers to one?
· WTO rules permit preferential trade agreements that go beyond the reduction in tariffs required by WTO rules. Basically, as long as a country is meeting minimum standards, it can become more open with just a few of its trade partners. That’s why a treaty like the USMCA (formerly NAFTA) which drops lots of trade barriers is allowed to only do so for Mexico and Canada.
Must eliminate tariffs on “substantially all” trade within “reasonable” time period.
o Cannot raise tariffs on non-members
So, these are treaties—agreements between states to cooperate on trade policy. Baccini (2019) covers much of the empirical literature about these agreements in his review. He uses the terms Macrofoundations and Microfoundations. Macrofoundation is just a fancy term for “structure” which means large institutions like governments, international institutions, or general global/national economic conditions.
Microfoundations are the decisions of individual actors—from a single company to a literal individual.
1. Macro: Why do states make these treaties?
a. Generally makes economies (as a whole) stronger and larger.
Firstly, this DOES NOT mean that everyone in the economy will be better off, remember that this is at the macro level.
b. Democracy—need to prove that the economy is better to get re-elected.
Firstly, only works for pairs of democracies
Secondly, can only benefit a voting base
c. “Tie hands” by using international commitments to prevent government from caving to domestic pressure in developing states.
d. Because competing countries have signed trade agreements.
2. Micro: Why do states make these treaties?
a. Large firms that need to save costs by engaging in mass production want free trade. As do firms that want to offshore some operation (this will be important for the multinational corporation (MNCs) section).
b. Where industries trade heavily with each other.
c. MNCs might use lobbying to get trade agreements that block out MNC competitors.
i. Eg free trade with Vietnam to avoid competition with China.
3. Effects of Trade Agreements
a. Trade and FDI increases
b. Increased foreign aid sent to developing states that sign PTAs with developed states.
c. Can increase chances of democratization
Margalit 2011 What about Jobs?!?
· As you might have noticed from the previous piece, a lot of the research into the effects of trade agreements is focused on issues like trade itself. While we do know that trade does not affect everyone equally—some people lose income, some firms close down, others open up—we are just now starting to study how that plays out.
· Looking at how changes in the international economy affects domestic politics (we normally look at the other direction)
· Asking whether increases in trade (globalization) changes how voters vote, and whether this is just because of regular changes in employment or foreign competition from lowered trade barriers.
o Workers will care if they are able to link their job loss to changes in international trade with other states.
· Both happen. Job losses lead to decreases for the incumbent, and local counties where jobs are lost because of foreign trade decrease support for the incumbent even more.