Handbook of Deep Trade Agreements, Forword by Pascal Lamy

Preferential trade agreements (PTAs) are a critical part of the international trade architecture, but
they remain poorly understood. In part, this is because there is surprisingly limited information
on what their features are and how they work in practice. This disconnect became patently
clear in the aftermath of the Brexit referendum, which has pulled the United Kingdom out of
the European internal market, the most achieved form of PTA. As I have argued, getting Brexit
done will be as difficult as getting an egg out of an omelet. This is because preferential trade
agreements have changed dramatically and increased in complexity in recent years.
This Handbook carefully documents this dramatic shift: the evolution of PTAs into “deep”
trade agreements. The wealth of new data that detail the content of PTAs will be essential for
researchers and practitioners in trade and beyond. It will help us address difficult questions on
the design and effects of deep integration and disintegration and on the future of international
economic governance at a moment when these issues are at the front line of the policy debate.
Let me put things in perspective. Controversy over the effects of preferential trade agreements,
whether they are good or bad, and particularly their relationship with the multilateral trade
system, has persisted despite the evolution of PTAs.

Since the early days of the post-war multilateral economic order, some trade experts
have lamented that these arrangements would create discrimination across countries and
fragment the world economy. Others (among which I include myself) have emphasized the
complementarity between regionalism and multilateralism, stressing that preferential trade
agreements could create a dynamic reform process leading to more, not less, global integration.
These arguments revolved around the notion that PTAs were essentially about tariffs. This was
true in the 1950s, but it is no longer true today. First, while tariff preferences are negotiated
in all trade agreements, they matter much less today than they did 70 years ago. As the WTO
noted in the World Trade Report 2011, a major reason is that most-favored-nation (MFN) tariffs
(i.e., the tariffs applied to all trade partners in a non-discriminatory way) have declined over
time, with more than half of global merchandise trade having applied MFN rates of zero.
Second, more than tariffs, preferential trade agreements today are about regulatory measures and
other so called non-tariff measures that were once the exclusive domain of domestic policymaking.
As shown by recent research at the World Bank, over 50 percent of the close to 300
PTAs in force today cover policy areas such as competition, subsidies, and regulatory standards.

For these reasons, “deep” trade agreements, as trade experts refer to this new class of agreements,
are fundamentally different than the previous generation of PTAs. They aim not only to create
market access between members but also to establish broader economic integration rights in
goods, services, and factor markets. Deep agreements support these rights by regulating the
behavior of importing and exporting governments. They frequently aim to improve efficiency
and consumer or social welfare, as in the case of competition or environmental provisions. As
noted by the authors in the Overview, ultimately deep trade agreements contribute to setting
the rules of the game that define how economies integrate, function, and grow.

The new evidence on the evolution of deep trade agreements should change the way we
think about the international trade architecture. PTAs continue to play a critical role in
creating market access through tariff reductions. In fact, PTAs have reduced trade-weighted
average tariffs rates to less than 5 percent for more than two-thirds of countries. But what sets
recent trade agreements, particularly post 2000, apart is the large increase in commitments in
areas such as services, trade facilitation, investment, and movement of capital. Many of these
areas are not covered in the WTO, and for those that are, PTAs often commit countries to
deeper, more substantive integration of markets. Over the past two decades, PTAs have also
seen an increase in regulatory requirements – the most striking and important of which is the
increased emphasis on enforcement of rules and dispute settlement.

Deep trade agreements are mostly driven by advanced economies, namely, the EU, the United
States, and Japan. PTAs signed between advanced economies and between advanced and
developing countries have deepened the most in the past 20 years. With very few exceptions,
such as the Pacific Alliance, preferential trade agreements among developing countries have
remained closer to the original purpose of trade agreements to grant reciprocal market access
in goods. This is true also for China, whose PTAs have remained limited in scope. In this
respect, while there are different approaches to deep integration in the EU, the United States,
and Japan, a Chinese model has yet to emerge.

The evolution in the institutions overseeing deep integration has corresponded to a broader
evolution in the nature of international trade.The old world of trade was a world where
production systems were national and where obstacles to trade were designed to protect
domestic producers from foreign competition. By contrast, the new world is a world where
production is transnational along global supply chains of goods and services and where
obstacles to trade are aimed at protecting the consumer from risks. We are moving from
the administration of protection – quotas, tariffs, and subsidies – to the administration of
precaution – security, safety, health, and environmental sustainability. Indeed, much of this
administration is what deep trade agreements are about.

This changing content raises a series of new questions for policymakers and for researchers.
What are the driving forces behind “deep” trade agreements and what are their effect? How
should deep trade agreements be designed to promote welfare of all members and minimize
discrimination of non-members? How can we find common ground between different
integration approaches and use preferential agreements as laboratories for reform of the
multilateral trade system?

These are difficult questions, but they are also timely and indispensable questions. The
technological innovations that led to the rise of global supply chains are here to stay. So is
the increased attention that consumers pose to regulations that protect their health and the
environment where they live. The “green wave” is coming fast and strong onto the shores of
international trade. And while one would hope that the recent surge in international trade
tensions would subside, the challenge of competing economic systems with different rules
on subsidies, competition, and state-owned enterprises will remain. What these issues have in
common is that they are about deep integration. Whether they are addressed multilaterally,
regionally, or bilaterally remains a major question about the future of the governance of
globalization. My conviction is that the new data and analysis in this Handbook will help
us all, both trade experts and others, understand how trade rules can contribute to better
harnessing globalization.

Pascal Lamy
Former Director General of the World Trade Organization

Dowonload the pdf on The World Bank Website