The South Asian Free Trade Agreement is not enjoying smooth sailing — New Delhi has decided to unilaterally withdraw tariff concessions given to Islamabad because of Pakistan’s non-compliance with SAFTA provisions. Read the Khaleej Times story.

Mary Amiti & John Romalis:

This paper assesses the likely gains in market access for LDCs and developing countries
following proposals for tariff cuts under the Doha Round. This was analyzed by simulating changes in import demand by the United States and the European Union, following cuts in the MFN tariff rates of around 40 percent. In contrast to other studies, our model incorporates preference utilization rates rather than assuming that preferences are fully utilized. Since preference utilization rates are as low as 50 percent for some countries, this is an important contribution in order to avoid over-estimating losses from preference erosion. We take into account all available tariff, trade, and utilization information for all products.

The results show that a cut in MFN tariffs by the United States and the European Union leads
to improved access to their markets for many developing countries that more than offsets losses due to preference erosion. The small numbers of developing countries that are likely to lose market access as a result of multilateral tariff cuts are the ones that receive very large benefits under existing preference schemes. This result can be explained by noting that currently many developing countries actually have inferior market access to developed countries: average tariffs on non-African LDCs’ exports to the United States are higher than those on developed countries (13.1 percent compared with 1.2 percent).

A round up of the latest PTA news, all available at bilaterals.org.

Central African preferential trade may soon emerge:

The Central African Economic and Monetary Community (CEMAC) yesterday held a meeting of its Finance Ministers in Cameroon’s biggest city, Douala, where the fast-tracking of regional integration was on the agenda. Four of the six member countries agreed to move on with a plan to create a free trade zone in the region, while Gabon and Equatorial Guinea asked CEMAC to await further discussions at home before joining the programme, at earliest in June.

South Korea is stubbornly protecting its agricultural markets in FTA talks with the US:

South Korea and the United States made no headway in high-level talks to resolve outstanding agricultural issues that have been a sticking point in bilateral free trade negotiations, the government said Tuesday… “Negotiators wrangled over market liberalization for ’sensitive’ South Korean agricultural produces, but were unable to reach any clear cut conclusions,” the official said. He did not elaborate on details, but Seoul said items like rice must be put on the sensitive items list even if a FTA is signed.

The EU’s tariff preferences for ACP countries are at risk:

EU trade commissioner Peter Mandelson reiterated the EU threat at a meeting last week that the ACP countries would lose their preferential access to EU markets if Economic Partnership Agreements (EPAs) were not signed by the end of the year… The 79 ACP countries in six regions (the Caribbean, four African regions and the Pacific) seem divided on the urgency of an agreement.

Scott Baiera & Jeffrey Bergstrand:

For over 40 years, the gravity equation has been a workhorse for cross-country empirical analyses of international trade flows and — in particular — the effects of free trade agreements (FTAs) on trade flows. However, the gravity equation is subject to the same econometric critique as earlier cross-industry studies of U.S. tariff and nontariff barriers and U.S. multilateral imports: trade policy is not an exogenous variable. We address econometrically the endogeneity of FTAs. Although instrumental-variable and control-function approaches do not adjust for endogeneity well, a panel approach does. Accounting econometrically for the FTA variable’s endogeneity yields striking empirical results: the effect of FTAs on trade flows is quintupled. We find that, on average, an FTA approximately doubles two members’ bilateral trade after 10 years.

That’s from last summer’s JIE.

Robert Zoellick may have retired to the private sector, but he is still proposing new regional trade mechanisms (and acronyms!):

This year President Bush and the Democratic-led Congress should launch a new Association of American Free Trade Agreements (AAFTA). The AAFTA could shape the future of the Western Hemisphere, while offering a new foreign and economic policy design that combines trade, open societies, development and democracy. In concert with successful immigration reform, the AAFTA would signal to the Americas that, despite the trials of war and Asia’s rising economic influence, U.S. global strategy must have a hemispheric foundation…

Starting with a small secretariat, perhaps in Miami, the AAFTA should advance hemispheric economic integration; link development and democracy with trade and aid; improve working and environmental conditions; and continue to pursue the goal of free trade throughout the hemisphere. It might even foster cooperation in the WTO’s global trade negotiations. The AAFTA might be connected to an academic center, which could combine research and practice through an association among universities in the Americas…

Just as Alexander Hamilton created a self-reinforcing financial system that vitalized America to deal with future challenges, the AAFTA would create a working, adaptable mechanism that would strengthen the Americas in the 21st century.

I’ve read the piece twice and still don’t know what this “working, adaptable mechanism” would actually do. The majority of the suggestions have already been tried, and I don’t think that fringe benefits like helping businesses negotiate rules of origin and “opportunit[ies] to design labor and environmental partnerships” constitute “a new foreign and economic policy design that combines trade, open societies, development and democracy.” Hemispheric trade talks are dead now, and AAFTA looks more like a botched anagram than an FTAA-saver.

[HT: Drezner]

Simon Evenett & Michael Meier (pdf):

When the Bush Administration took office in January 2001 the U.S. executive branch had been without trade negotiating authority from Congress for six years. It is unsurprising, therefore, that the newly appointed U.S. trade officials put a high priority on being granted this authority and perhaps felt that they needed a compelling narrative to explain why that authority should be granted and how it would be subsequently used. Competitive Liberalization was adopted as the credo of the Bush Administration’s trade officials…

There is no doubt that U.S. trade negotiators have been very active since 2001… At least 18 Trade and Investment Framework Agreements, a pre-cursor to negotiations for a free trade agreement, have been signed. The Doha Round was launched and U.S. officials have contributed to ongoing regional initiatives such as APEC and the FTAA. Some might argue that these activities have restored the United States’ central role in the world trading system and this is praise enough. However, is this the right metric to judge Competitive Liberalization? After all, has the implementation of this policy fulfilled the goals articulated for it at the beginning of the Bush Administration? This question is all the more important as Competitive Liberalization represented an explicit break from the United States almost exclusive pursuit of multilateralism.

We argued that a number of factors have limited the effectiveness of the policy of Competitive Liberalization often from the start, including: the internal divisions among U.S. legislators and among the executive branch over the priorities for U.S. trade policy; the associated tendency to load more and more conditions on U.S. trading partners before and during negotiations on free trade agreements; the effect of pre-existing U.S. unilateral preference schemes; and the options available to trading partners to bolster foreign direct investment other than signing free trade agreements with the United States. These constraints, plus concerns about the coherence of the logic underlying Competitive Liberalization and the incentives created by some aspects of this policy, lead us to conclude that the current U.S. trade policy is almost certain to fall well short of its stated goals.

Over the longer term, U.S. officials and trade policy experts may want to reflect on the strength of the supposedly mutually reinforcing aspects of negotiations at the bilateral, regional, and multilateral levels. For if multilateralism and leading regional trade initiatives remain stalled, then Competitive Liberalization may amount to little more than bilateral opportunism masquerading as high principle.

In the FT, Paul Collier advocates trade preferences for African manufactures:

Africa faces three distinctive economic problems, each amenable to a distinct policy. The first is that the region has failed to diversify into labour-intensive manufactures. Although some countries cannot hope to break into global markets – the landlocked, the resource-rich and the failing states – others, such as Kenya, Ghana and Senegal, are well suited for manufactured exports. Unfortunately, in the 1980s when Asia first penetrated these global markets, coastal Africa was mired in poor governance and conflict. Africa’s belated improvements have come too late: the region has missed the globalisation boat. Asian cities now have massive agglomeration economies. African exports need to be pump-primed over the entry threshold constituted by these competing agglomerations and this needs a temporary advantage over Asia in markets of the Organisation for Economic Co-operation and Development…

Africa needs pan-OECD temporary preferential access for its labor-intensive manufactures, combining the best of EBA and Agoa. Such trade policy has the potential to create millions of jobs in Africa.

In the FT, Paul Collier advocates trade preferences for African manufactures:

Africa faces three distinctive economic problems, each amenable to a distinct policy. The first is that the region has failed to diversify into labour-intensive manufactures. Although some countries cannot hope to break into global markets – the landlocked, the resource-rich and the failing states – others, such as Kenya, Ghana and Senegal, are well suited for manufactured exports. Unfortunately, in the 1980s when Asia first penetrated these global markets, coastal Africa was mired in poor governance and conflict. Africa’s belated improvements have come too late: the region has missed the globalisation boat. Asian cities now have massive agglomeration economies. African exports need to be pump-primed over the entry threshold constituted by these competing agglomerations and this needs a temporary advantage over Asia in markets of the Organisation for Economic Co-operation and Development…

Africa needs pan-OECD temporary preferential access for its labor-intensive manufactures, combining the best of EBA and Agoa. Such trade policy has the potential to create millions of jobs in Africa.

Professor Ross Garnaut:

Some economists warned of the emerging dangers of proliferation of preferential trading arrangements when they became apparent from late 2000, and argued against the early and decisive steps that Australia took to hasten the Asia Pacific region down the preferential path. But that debate has come and gone. Mark Antony would have said that it was time to bury the old traditions of free trade, not to praise them. The task now is to analyse the emerging realities, and to apply the lessons to ongoing policy development. [PDF]

I find the thrust of this paper by Hiau Looi Kee, Marcelo Olarreaga & Peri Silva entirely unsurprising, but it’s worth passing along nonetheless:

This paper addresses two main questions: Can lobbying by Latin America’s exporters in the US explain the observed pattern of tariff preferences? And if yes, what is the return on $1 dollar of lobbying in the United States by Latin American exporters?

Results suggests (sic) that lobbying by Latin American exporters to the US government can indeed help explain the variation in tariff preferences across products and countries. Moreover, the returns to foreign lobbying seem to be relatively high, around 50 percent. Finally, contrary to the empirical literature for the United States described above we found very low values for the estimates of the weight granted to social welfare in the government’s objective function (around two times the weight granted to foreign lobbying contributions), which underscores the importance of foreign (and domestic) lobbying in determining US trade policies.