Raymond Hicks Soo Yeon Kim Princeton University University of Maryland Not all PTAs are Equal: Credible Commitment through PTAs and their Effects on Trade Raymond Hicks Soo Yeon Kim Princeton University University of Maryland

Question: How do PTAs affect trade among participants? Focus: Are the effects of PTAs homogeneous?

Argument: PTAs signal credible commitment to trade liberalization PTAs differ in the level of credibility embedded in their provisions PTAs therefore differ in their effect on trade as a function of these provisions

Coding RTAs and Levels of Credibility: Weighted index 5 categories, 19 components Type of RTA Breadth of Coverage Depth of Coverage Pace of Change Ratification and Withdrawal

Overview: 57 RTAs in Asia, 1970-2006 Timing: higher scores for post-1995 RTAs Higher scores for FTAs vs. PTAs Higher scores for bilateral vs. multilateral agreements Country differences: more developed countries (Japan, Singapore, Korea) have higher credibility scores

Quantitative Analysis: Unit of analysis: directed-dyad year Sample: dyads with at least one Asian country Dependent variable: imports (in constant US dollars, 2000) of country i from country j in a given year Independent variable of interest: dummy and continuous measures for RTA Control variables: GDP, GDP per capita, land size, border, distance, language, colonial ties

Findings: RTAs and Trade, 1970-2003 Year FEs Dyad FEs Year & Dyad FEs Presence of RTA 0.530*** (0.189) 0.271*** (0.103) 0.208** (0.102) Credibility of RTA 1.176* (0.612) 0.767*** (0.297) 0.587** (0.294)

Figure 1: RTA Signing vs. RTA Credibility

Conclusions: RTAs differ in the levels of credibility embodied in their provisions Analysis of RTAs in Asia shows that RTA signing and RTA credibility differ in their effect on trade for participants. Surge in RTAs in recent years may lead to “crowding” in the Asian region, which may dilute their trade-creation effects.

Future Modifications for RTA Data Rules of origin requirements Percentage of value content? Tariff classification change? Withdrawal Longer time until withdraw takes effect = more credibility? why not include rules of origin? Pure oversight—a quick glance suggested they looked the same. Late in coding realized there were differences. For example, China-HK and China-Macao agreements, HK and Macao have to prove to China’s satisfaction that industries domestically produced. No real objective criteriaHidden protectionism How to measure? One option: % of the value that must be produced in the exporting country. Smaller %, the more credible How do agreements deal with tariff classification changes? Affects all industries, targeted at some, or affects no industries Also withdrawal: How long after a country decides to withdraw does it have to stop applying the provisions of the agreement? Longer time frame gives exporters and importers more opportunity to adjust their strategiesgreater credibility.

Thank you!

Backup slides

RTA credibility index, part 1 Type of RTA proposed – level of integration in the agreement (weight = 0.20) Breadth of coverage – restrictions on actions of government (weight = 0.175) Tariff reductions reciprocal (0.025) Agriculture products covered (0.025) Industrial products covered (0.025) NTBs covered (0.05) Technical barriers to trade (0.05)

RTA credibility index, part 2 Depth of coverage – stringency of enforcement mechanisms (weight = 0.45) Dispute settlement (0.075) Dispute settlement resolution (0.025) Dispute settlement compensation (0.05) Escape clause identification (0.075) Escape clause action (0.05) Dumping clauses (0.075) Formal institutions (0.05) Timing of meetings (0.05)

RTA credibility index, part 3 Pace of change – speed of movement to final objective (weight = 0.10) Timetable (weight = 0.025) Extent of initial tariff cuts (weight = 0.075) Administration – operation of the agreement (weight = 0.075) Ratification (weight =0.025) Renewal (weight =0.025) Amendment (weight =0.025)