The latest in preferential trade

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.

Trade on the Hill

Eoin Callan and Alan Beattie report on the Bush administration’s difficulties in garnering votes for its PTAs with Colombia, Panama and Peru:

The Bush administration may have to advance its trade agenda with narrow bipartisan support if there is no breakthrough in ongoing talks with the Democratic-controlled Congress.

This scenario would see the White House force votes on pending trade deals in the hope of forging a majority with backing from Republicans and a handful of Democrats in the House of Representatives.

The votes are likely to be divisive and would further strain political support for free trade in the US. It could also slow efforts to reach a successful conclusion of the Doha round of world trade talks and hamper US efforts to initiate new agreements.

Perhaps the efforts to conclude Doha are moving so slowly that that tradeoff is not a real concern.

New estimates of FTAs’ impact on bilateral trade flows

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.

Trade liberalization and illicit goods

Here’s an odd anti-FTA argument:

A negative fallout of the South Asian Free Trade Area (SAFTA) agreement could be an increase in the narcotic traffic in the region, said Dr MM Bhatnagar, member of the International Narcotic Control Board (INCB). Releasing the annual report of the INCB [pdf], Dr Bhatnagar said that past experiences of free trade zones around the world had shown that they at times had become free zones for narcotic trade as well.

I know of good reasons to oppose SAFTA, but the belief that lower import duties will increase the smuggling of illicit goods is not one of them. The experience in other free trade zones has been that increased trade flows provide more shipments within which to hide drugs. But that is an argument against trade flows, not preferential trade agreements.

Development assistance uncertainty

Jeff Sachs on the need for predictable aid flows:

Following the G8 pledge in 2005 there have been no proper timetables set out for African countries explaining to them how their aid levels will rise to meet the 2010 pledge. In country after country, African leaders and finance ministers are told by local representatives of the donor agencies that there is no information as to how or when aid levels will increase to meet the commitment. In some countries, recipients of US development aid have been advised that aid, other than that for HIV/Aids and malaria, is being cut as budgets are shifted to Iraq.

It is understandable that G8 finance ministers would like to leave themselves maximum flexibility in the timing and direction of aid, but this approach to development assistance ends up being self-defeating.

Instead of a rational process of raising critical investments, we have a guessing game. Will the aid be doubled or not? Will it be doubled as an accounting trick (for example, by cancelling unpayable debts and labelling each dollar of debt cancellation as a dollar of aid), or will it be an actual flow of commodities and cash? Will the aid come as fees for high-priced consultants or as funds for practical investment? Will the G8 wait until 2010 to increase actual cash flows, or will the aid increase step-by-step between now and then?

I, for one, welcome our new foreign lobbyists

This is interesting:

Our analysis of the data suggests that foreign lobbying activity has significant impact on trade policy – and in the predicted direction: Tariffs and non-tariff barriers (NTBs) are both found to be negatively related with foreign lobbying activity. We consider also extended specifications in which we include a large number of additional explanatory variables that have been suggested in the literature as determinants of trade policy (but that emerge from outside of the theoretical structure described above) and confirm the robustness of our findings in this setting.

That’s Kishore Gawande, Pravin Krishna & Michael J. Robbins on “Foreign Lobbies and US Trade Policy.”