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Deep PTAs, Global Value Chains and Migration

Preferential trade agreements (PTAs) can be used by signatory countries to manage international migration flows and participation in global value chain. The inclusion of an additional provision in PTAs stimulates the bilateral fragmentation of production by 1 percent, while PTAs that facilitate visa and asylum administrative procedures stimulate bilateral migration by up to 34 percent.
Par Gianluca Orefice
Billet du 2 décembre 2018


The number of Preferential Trade Agreements (PTAs) around the world has grown exponentially over the past thirty years. From less than 100 in the nineties, there are today more than 450 active PTAs notified at the World Trade Organization (see Figure 1). This is clear evidence of an increasingly globalised world, where countries sign bilateral or regional agreements to strengthen commercial relations with consolidated and/or new trade partners. Preferential trade agreements are traditionally perceived as a way of granting preferential market access to trade partners. By signing a PTA, bilateral trade is expected to increase because of reduced tariffs. An interesting meta-analysis conducted by Head and Mayer (2014) reveals that the signature of a Preferential Trade Agreement raises bilateral exports by approximately 30%. However, PTAs may also be used by signatory countries to manage international migration flows and develop their networks of international production sharing, two challenging aspects of modern globalisation.

 
Figure 1: Number of RTAs notified at the WTO, per year and cumulated
 source: WTO 


The content of PTAs and the development of Global Value Chain

The content of PTAs has evolved over time. “Old” agreements, signed during the eighties and the nineties, essentially covered preferential market access provisions that reduced bilateral tariff (symmetrically or not). “New” PTAs tend to cover a wider range of provisions spanning from those already covered by the mandate of the WTO (WTO+) to provisions that go beyond the mandate of the WTO (WTO-X). See Horn et al. (2010) for a detailed description of WTO+ and WTO-X provisions. Table 1 here below lists synthetically the WTO+ and WTO-X provisions as defined by Horn et al. (2010). Modern PTAs include provisions that go beyond pure market access purposes; as for example provisions regulating environmental issues, regional and industrial cooperation, or taxation. The number of provisions included in a PTA may be seen as a proxy for its horizontal depth.[1]


 
Table 1: WTO+ and WTO-X policy areas in PTAs
 
WTO+ AREAS
WTO-X AREAS
PTA Industrial goods
Anti-Corruption
Health
PTA Agricultural goods
Competition Policy
Human Rights
Customs Administration
Environmental Laws
Illegal Immigration
Export Taxes
IPR
Illicit Drugs
SPS Measures
Investment Measures
Industrial Cooperation
State Trading Enterprises
Labour Market Regulation
Information Society
Technical Barriers to Trade
Movement of Capital
Mining
Countervailing Measures
Consumer Protection
Money Laundering
Antidumping
Data Protection
Nuclear Safety
State Aid
Agriculture
Political Dialogue
Public Procurement
Approximation of Legislation
Public Administration
TRIMS Measures
Audiovisual
Regional Cooperation
GATS
Civil Protection
Research and Technology
TRIPs
Innovation Policies
SMEs
 
Cultural Cooperation
Social Matters
 
Economic Policy Dialogue
Statistics
 
Education and Training
Taxation
 
Energy
Terrorism
 
Financial Assistance
Visa and Asylum

Source: Horn et al. (2010).
 

The depth of recent PTAs can be seen as a way for countries to secure bilateral partnerships and narrow the international gap in business laws and regulations. In particular, WTO-X provisions, such as those regulating the bilateral movement of capital, competition policy, and intellectual property rights, may favour and enable the development and participation of countries in internationally fragmented production networks. Figure 2  shows the strong correlation between the average depth of PTAs (by decade of signature) and the amount of trade in parts and components among member countries (intended as a proxy for production network trade). Orefice and Rocha (2014) show that the inclusion of one additional provision in a PTA stimulates bilateral trade in parts and component on average by 1 percent. Specifically, while including an additional WTO-X provision in an agreement increases trade by 1.3 percentage points, having an additional WTO+ provision increases production network trade by 1.5 percent (see table 5 in Orefice and Rocha 2014).
 

Figure 2: PTA depth and trade in parts and components

 

Source: Orefice and Rocha (2014) 
 

The role of PTAs in managing international global value chains thus becomes evident. By playing with the type and depth of provisions included in bilateral or regional agreements, countries may secure and develop their own networks of international production sharing.

PTAs as a device to manage international migration

PTAs can also be used by signatory countries as an instrument to regulate international flows of migrants. PTAs’ provisions aimed at easing visa and asylum procedures for workers moving among member countries, and/or provisions regulating the labor markets of signatory countries may favor bilateral migration of workers.[2] Moreover, the signing of a PTA (regardless of the inclusion or not of migration-related provisions) may affect bilateral migratory flows by raising awareness of partner countries among potential migrants. All other factors affecting migration being constant, the improved diplomatic relations and greater familiarity among PTA members may induce potential migrants to select their destination country among those with whom the origin has a PTA in common.

Using an instrumental variable approach to solve the endogeneity problem, in Orefice (2015) I find that the signature of a PTA (regardless of its content) stimulates bilateral migration by 24%. More interestingly, PTAs that include visa-asylum provisions stimulate bilateral migration flows by 35%; while PTAs that include provision regulating labor markets among member countries stimulate bilateral migration flows by 39%.

The design of PTAs to cope with globalization

These results are of extreme interest for policymakers as they suggest that PTAs may be used to manage international production networks and the cross-border migration of workers. If governments are restricted in their ability to increase migration inflows and/or develop production networks through direct liberalisation policies (for example because of negative attitudes towards globalisation among their electorate), they can consider using PTAs to manage indirectly immigration in response to labour market shortages and/or production network trade if needed to improve the international competitiveness of domestic enterprises.


 

References

Head, K., and T. Mayer, 2014, "Gravity Equations: Workhorse,Toolkit, and Cookbook", chapter 3 in Gopinath, G, E. Helpman and K. Rogoff (eds), vol. 4 of the Handbook of International Economics, Elsevier: 131-195.

Horn, H., Mavroidis P.C. and A. Sapir (2010) "Beyond the WTO? An Anatomy of EU and US Preferential Trade Agreements" in The World Economy, vol.33(11) pp.1565-1588.

Orefice, G. "International Migration and Trade Agreements: the new role of PTAs", Canadian Journal of Economics, 2015, vol.47(4), pp.310-334.

Orefice, G. and N. Rocha "Deep integration and production networks: an empirical analysis”, The World Economy, 2014, vol.37(1), pp.106-136.

 


[1] The horizontal depth of a PTA opposes to the concept of vertical depth of PTA, approximated by the degree of integration guaranteed by a given provision.

[2] See Orefice 2015 table A1.1 for a list of PTAs containing visa-and-asylum PTAs’ provisions; and table A1.2 for the list of PTAs containing labor market regulation provisions.

Commerce & Mondialisation  | Migrations 
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