Political Trade Dependence and North–South Trade Agreements

Provisions to promote economic development have been a cornerstone of the international trade regime since their introduction in the 1960s and 1970s. Under various “special and differential treatment” provisions, the GATT (and later the WTO) permitted the granting of unilateral tariff concessions to developing countries. Through the generalized system of preferences (GSP) and related programs, developed countries offer preferential access to their markets without requiring developing countries to provide reciprocal market access. Despite participating in these programs, developing countries have sought numerous trade agreements with developed-country partners during the past two decades. Unlike the GSP and GSP-related schemes, these agreements, which we call “North–South Regional Trade Agreements” (RTAs), entail reciprocal trade liberalization and, due to Art. 24 of the GATT, require the elimination of most tariffs.1 Why do developing countries seek to negotiate RTAs with more developed countries when they already have preferential access to the latter countries' markets? Why do developing countries' governments incur often significant political costs to conclude such deals, even though North–South RTAs do not necessarily offer more market access than what they already enjoy?

We argue that developing countries seek RTAs because the GSP and GSP-related programs, due to their nature as unilateral concessions, do not provide sufficiently reliable or stable market access. We develop the concept of “political trade dependence” (PTD) to reflect the degree to which developing countries rely on such programs and more specifically the degree to which countries' market access is subject to political idiosyncrasies in concession-granting developed countries. The greater the PTD, we argue, the more likely that a developing country will try to secure an RTA to lock in existing access to the market of a developed country. We provide illustrations of this mechanism and then test it on a dyadic data set consisting of the EU, the USA, and 165 developing countries during the period of 1990–2010. We find robust statistical support for the importance of PTD in the decision to sign and ratify North–South RTAs. ...

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