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Little analytical attention has so far been devoted to the issue of rules of origin in a services and investment context. This chapter wades into this largely uncharted territory by advancing a few thoughts on a range of economic and legal considerations arising from the way in which various agreements seek to determine and condition who gets to benefit from services trade and investment liberalization. It focuses on the practice of preferential and non-preferential services trade liberalization as found in various bilateral and regional trade and investment agreements as well as the World Trade Organization’s (WTO) General Agreement on Trade in Services (GATS). It addresses a range of conceptual issues relating to services trade that impinge upon the design and implementation of rules of origin for services. The discussion draws attention to a number of salient characteristics of trade in services that limit the usefulness of concepts and approaches to origin developed in the context of trade in goods. Attention is also drawn to a number of economic considerations that should inform the design of rules of origin for services trade to minimize the potentially adverse effects of trade and investment diversion, and maximize the economy-wide gains in allocative efficiency that well-designed services liberalization can entail.

This chapter shows how trade regulations and the global and regional institutions within which they are framed have distinctively shaped the textile and clothing industry for almost fifty years. It reviews the quantitative restrictions imposed by the Multi-Fibre Arrangements (MFA) and the Agreement on Textiles and Clothing (ATC) until their expiry on 31 December 2004; the principal agreements on preferential access that govern tariff rates between the US or the EU on the one hand and their T/C trading partners on the other; and the highly complex pattern of rules of origin that shape the flow of component parts along the various stages of the clothing value chain.

Firm level interviews are used to assess the economic implications of the rules of origin (ROO) applied for trade to qualify under the Southern African Development Community (SADC) Trade Protocol. Approaches to ROO reflect the tension between regional integration as a platform for improving competitiveness in international markets, and using it as a ‘policy tool for development’ to obtain privileged access to a larger protected market. The analysis of selected SADC ROO in agriculture and manufacturing shows that these will prevent efficiency gains from being realized by the Free Trade Area by maintaining the pre-Trade Protocol protection and trade patterns. ROO that seek to influence the sourcing of inputs through fiat will encourage trade diversion and reduce international competitiveness.

This chapter models preferential trade agreement (PTA) formation as a competitive process, demonstrating that the presence of bilateral intra-industry trade informs us as to which states will form PTAs. This follows because (1) firms benefit from larger markets and increased efficiency, potentially gaining relative to firms in states left out of the agreement; (2) intra-industry trade suggests similar productivity, such that firms in member states are less likely to be harmed by preferentially reduced trade barriers; and (3) strategic considerations are lessened as inter-industry specialization decreases.

This chapter looks at the role of Rules of Origin in the implementation of Preferential Trade Agreements (PTAs) in the southern cone region of Latin America. It considers the (imperfect) Custom Union (CU) of Mercosur and the Free Trade Agreements (FTAs) signed between Mercosur and Chile, and Mercosur and Bolivia. These PTAs allow the study of the potential contrast in the design of ROOs under CU and FTA. The following key questions are addressed: Was there any significant difference in the design of ROOs under CU and FTAs? Were the latter more restrictive? To what extent did normative vis-à-vis political economy considerations play any role in the determination of ROOs in the Southern Cone?

Economic integration among Anglosphere economies peaked during the period from 1870 to 1960. Maintenance of Imperial Preferences and the Sterling Area ensured that Britain remained the dominant market for most colonies and Dominions in the early post-Second World War period. Britain’s entry into the EEC, the ending of Commonwealth preferences, and the rapid growth of Asian economies caused the UK’s share in Anglosphere economies’ exports to decline rapidly. Growth in the US market share offset some of this decline until the financial crisis of 2007–8 reversed this trend. The significance of intra-Anglosphere trade has declined substantially – from approximately two-thirds of countries’ total trade in 1913 and in 1947 to just over one-third in 2016. Contemporary trade patterns are shaped more by geography than history. The world economy remains substantially regionalised, especially for manufacturing. Many preferential trade agreements (PTAs) are regional in scope: Anglosphere economies have been prominent participants in these arrangements but their partners are typically neighbouring countries rather than other Anglosphere economies. The EU has been the most active negotiator of PTAs: the challenge for a post-Brexit UK will be to negotiate access to markets equivalent to that currently enjoyed through membership of EU PTAs.

Using detailed data on trade and tariffs from 1992–2007, the chapter examines how the Association of Southeast Asian Nations (ASEAN) Free Trade Agreement has affected trade with nonmembers and external tariffs facing nonmembers. First, the chapter examines the effect of preferential and external tariff reduction on import growth from ASEAN insiders and outsiders across HS 6-digit industries. It finds no evidence that preferential liberalization has led to lower import growth from nonmembers. Second, the chapter examines the relationship between preferential tariff reduction and most-favored-nation (MFN) tariff reduction. It finds that preferential liberalization tends to precede external tariff liberalization. To examine whether this tariff complementarity is a result of simultaneous decision-making, it uses the scheduled future preferential tariff reductions (agreed to in 1992) as instruments for actual preferential tariff changes after the Asia crisis. The results remain unchanged, suggesting that there is a causal relationship between preferential and MFN tariff reduction. The chapter also finds that external liberalization was relatively sharper in the products where preferences are likely to be most damaging, providing further support for a causal effect. Overall, the results imply that the ASEAN agreement has been a force for broader liberalization.

This chapter deals with one of the most important exceptions to the most‐favoured‐nation (MFN) rule allowed by the WTO (World Trade Organization): regional integration agreements (RIAs). Almost all WTO members are participants in one or more RIA, thus raising serious questions about the relevance of the WTO's non‐discrimination principle. The sections of the chapter are as follows: Motivations for regional economic integration; GATT (General Agreement on Tariffs and Trade) Article XXIV: Preferential trade agreements; GATS (General Agreement on Trade in Services) Article V: Economic integration; Trading blocs and the trading system; and Conclusion.

After several decades a reasonable assessment of preferential trade agreements (PTAs) can be made using evidence drawn from a broad sample of experiences. The results are mixed, but there is doubt that PTAs are, as yet, a big factor. PTAs currently cover only a small fraction of trade in terms of the actual amount of liberalization achieved (that is, above and beyond multilateral agreements). Intra-PTA trade shares are small in most cases and the institutional aspects of “deep integration” do not seem to be advanced that much by PTAs. PTAs have not achieved as much as might be thought, and that the multilateral process has been, and remains, central to the trade liberalization process.

The worries over preferential trade agreements (PTAs) have increased dramatically in the past two decades as PTAs have proliferated. This chapter discusses the consequences of complexity of the resulting trade regime. The Vinerian concerns about the trade diversion that a PTA can cause have yielded by now to “systemic” concerns about PTAs. The systemic problem from discriminatory trade liberalization under PTAs arises in two ways. The trade-unrelated issues are reported. It is hard to speculate the consequences of PTAs with equanimity.

It is important to first understand that few lay people and policy makers can appreciate the critical difference between preferential trade agreements (PTAs) and genuine multilateral, nondiscriminatory trade liberalization in order to fully understand the many reasons why PTAs have now turned into a pandemic and a pox on the world trading system. While the First Regionalism was certainly influenced by the European Community's first steps and the program of further steps toward full integration, its main impulse was altogether different. This regionalism struggled, and the Second Regionalism was a howling success from the early 1990s. The many elements that have contributed to the remarkable and deplorable turnaround that marks the Second Regionalism are described.

Most preferential trade agreements (PTAs) are in the form of free trade agreements (FTAs), which is a rare few contain an added common external tariff that converts them into customs unions (CUs). John Maynard Keynes, arguably the twentieth century's most influential economist, was reverting to an antidiscrimination view that had begun to make increasing sense to economists during the 1930s. The General Agreement on Tariffs and Trade (GATT) was designed to make uncoordinated free-for-all actions on raising trade barriers difficult through “rules” and “bindings” that would govern and discourage a lapse into competitive raising of trade barriers. In general, it is stated that the world is marred by discriminatory trade, much as had been experienced in the 1930s, from which all sensible men and women had recoiled.

This chapter seeks to show the extent of the changes introduced by the intellectual property (IP) chapters of preferential trade agreements (PTAs) to the IP framework existing under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). In particular, the chapter highlights how PTAs have shifted the balance between IP holders and users. The authors illustrate this development through the examples of PTAs concluded by developing countries with the United States, the European Community (EC) and the European Free Trade Association (EFTA). Concerns have been expressed about the effect generated through PTAs on developing countries in terms of reduced flexibility in the implementation of TRIPS rules, possible repercussions on developing countries ‘positions in international negotiations, and additional costs caused by far reaching PTA obligations on IP enforcement. The chapter provides an analysis of these concerns in respect of public health, biodiversity, technological protection measures, and IP enforcement.

This chapter focuses on preferential trade agreements, the second exception to the most favored nation clause. Unlike special and differential treatment, which is focused on providing benefits to developing countries, preferential trade agreements are designed to liberalize ‘substantially all trade’. This chapter examines the two permissible forms to qualify for the exception – a customs union or free trade areas – the pros and cons of each form and what is meant by ‘substantially all trade’. Further, the chapter discusses litigating PTAs before the WTO.

Pravin Krishna provides the analytical tools for evaluating the economic effects of preferential trade agreements (PTAs) on member and non-member countries. He demonstrates that PTAs have ambiguous welfare effects, with net benefits largely depending on whether they are trade creating or trade diverting. Contrary to conventional wisdom, he finds that claims in favor of geographic proximity or regionalism as a basis for extending trade preferences are not supported theoretically or empirically. This suggests that other factors, such as the wish to forge closer political ties, probably also motivate countries to seek regional PTAs. Krishna argues that PTAs can be designed in ways that limit trade diversion and augment their welfare-enhancing effects, but WTO rules do not encourage these results. A widely debated topic surrounding PTAs is whether they distract from or support multilateral trade liberalization. Krishna finds that the academic literature is divided on these issues.

This chapter examines the effects of the trade and nontrade provisions of preferential trading arrangements (PTAs) on international trade and foreign direct investment (FDI) flows of member and nonmember countries. The analysis reveals that there may be economic gains from the nontrade provisions of third-wave PTAs but there are still economic costs associated with the preferential nature of the trade provisions. This chapter suggests that there could be real benefits if countries could use regional negotiations to persuade trading partners to make progress in reforming such things as investment, services, competition policy, and government procurement, especially if this is done on a nonpreferential basis.

The introduction presents the main themes of the volume and provides a brief overview of each chapter. One of the primary encompassing themes is that several current economic and political trends seem to be undermining efforts to expand trade liberalization at the multilateral level. A major challenge to sustaining progress is the fact that the trade agenda has expanded over time from focusing primarily on “at the border issues” to encompassing, since the end of the Uruguay Round in 1994, “behind the border” issues. More recently, even more controversial efforts to link issues, such as labor rights and the environment, to multilateral negotiations have gained traction. Given the lack of significant progress in multilateral negotiations, the editors suggest that it is possible that preferential trade agreements, which in many ways have become the de facto vehicle for trade agreements in recent years, may become the preferred vehicle.