Politics of preferential trade agreements

International political economy examines the interactions between countries on the global stage. It studies the effects of policy decisions on the global economy and the impact of international relations on economic stability. One of the most important topics in international political economy is the politics of preferential trade agreements. Preferential trade agreements are agreements between two or more countries that reduce trade barriers and promote economic integration. These agreements allow countries to increase trade and investment opportunities, leading to economic growth and stability. They also provide a platform for countries to negotiate better terms on different issues such as labor, environmental standards, and intellectual property protection. The politics of preferential trade agreements can be complex, as countries must balance their own interests with the interests of their partners. Understanding how these agreements are negotiated and how they impact countries is essential for understanding international political economy.

Multilateral vs preferential trading

Multilateral trade is between three or more countries and is governed by international organisations such as the World Trade Organization (WTO). Multilateral trade is based on the principle of non-discrimination, meaning that all WTO member countries are treated equally and have the same market access.

Preferential trade refers to trade between two or more countries governed by a preferential trade agreement (PTA), such as a free trade agreement (FTA) or a customs union. PTAs are often formed between countries with a close economic relationships and seek to reduce trade barriers. Unlike multilateral trade, PTAs are discriminatory and provide preferential treatment to the countries that are party to the agreement.

The General Agreement on Tariffs and Trade (GATT), the precursor to the WTO, played a significant role in liberalising international trade and reducing trade barriers. The GATT and the WTO have helped to increase global trade and economic growth by promoting trade liberalisation and reducing tariffs and other trade barriers.

However, over time, the effectiveness of the GATT/WTO in reducing trade barriers has declined. This is partly due to the proliferation of PTAs, which have increased in number and significance in recent decades. PTAs have often been used as a means to circumvent the rules of the GATT/WTO and provide preferential treatment to certain countries or industries. This has led to a proliferation of trade barriers and a fragmentation of the global trading system.

In general, the proliferation of PTAs has had a negative effect on global trade, as it has led to a proliferation of trade barriers and a fragmentation of the global trading system. This has made it more difficult for countries to access foreign markets and has led to a decline in global trade over time.

The General Agreement on Tariffs and Trade (GATT), the precursor to the World Trade Organization (WTO), played a significant role in liberalising international trade and reducing trade barriers. The GATT and the WTO have helped to increase global trade and economic growth by promoting trade liberalisation and reducing tariffs and other trade barriers.

In the past, colonialism significantly impacted international trade and the global economy. During the era of colonialism, many countries were dominated by colonial powers, which often exploited the resources and labour of these countries for their economic benefit. This led to a significant imbalance in the global economy and a concentration of wealth and power in the hands of a few colonial powers.

The GATT and the WTO have helped mitigate some of the adverse effects of colonialism by promoting trade liberalisation and reducing trade barriers. This has allowed countries previously dominated by colonial powers to participate more fully in the global economy and benefit from increased trade and economic growth.

However, the proliferation of preferential trade agreements (PTAs) in recent decades has hurt global trade. It has tended to undermine the principles of non-discrimination and equal access to markets that are central to the GATT/WTO. Moreover, PTAs often provide preferential treatment to certain countries or industries, creating imbalances and distorting trade. In this way, PTAs may reinforce some of the negative effects of colonialism and contribute to a fragmentation of the global trading system.

Historical background

German Customs Union

The German Customs Union, also known as the Zollverein, was a trade coalition of German states that was established in 1834. The Zollverein was created to reduce tariffs and trade barriers between the participating states, including Prussia, Bavaria, Saxony, and other German states. The goal of the Zollverein was to create a common market within Germany, facilitating trade and economic growth.

The establishment of the Zollverein played a significant role in the economic development of Germany and was an important precursor to the unification of Germany in 1871. The Zollverein helped reduce trade barriers and facilitated the development of a common market within Germany, which facilitated the growth of industry and commerce. Moreover, the economic success of the Zollverein was a major factor in the eventual unification of the German states, as it demonstrated the benefits of economic cooperation and integration.

After the unification of Germany in 1871, the Zollverein continued to function as the main economic institution of the newly-formed German Empire. However, the Zollverein was eventually dissolved in 1890 after introducing the German Empire's first customs tariff, establishing a common tariff system for the entire German Empire.

Franc zone

The Franc zone, also known as the French franc zone or the CFA franc zone, is a group of countries in West and Central Africa that have adopted the CFA franc as their official currency. The CFA franc is a currency pegged to the euro and used as a common currency in these countries. The franc zone was established in 1901 and was originally limited to a few countries in West Africa. In 1938, the franc zone was expanded to include most of the former French colonies in West and Central Africa.

The franc zone has played an important role in the participating countries' economies, as it has provided a stable currency and facilitated trade and investment. However, the franc zone has also been the subject of criticism, as it has been seen as a vestige of colonialism and a means for France to exert economic influence over its former colonies.

The franc zone is still in existence, although it has undergone some changes over the years. In 1994, the CFA franc was revalued, and the franc zone was renamed the "Francophone Africa Monetary Union" (UEMOA). The UEMOA comprises eight West African countries and is overseen by the Central Bank of West African States (BCEAO). In addition to the CFA franc, the UEMOA also includes the Central African CFA franc, used in six Central African countries.

British imperial preference

British imperial preference was a system of tariffs and trade agreements that was established by the United Kingdom in the early 20th century. The system was designed to provide preferential treatment to the countries of the British Empire, which included countries in Africa, the Caribbean, and Asia, as well as Canada and Australia.

British imperial preference was established at the Ottawa Conference in 1932, which representatives of the British Empire attended. The conference resulted in the creation of the Imperial Economic Conference, which was responsible for coordinating economic policy among the member countries of the British Empire.

Under the system of British imperial preference, member countries of the British Empire were granted preferential access to each other's markets, with lower tariffs on their exports to the UK and other imperial countries. The system's goal was to promote trade and economic cooperation within the British Empire and boost the economies of the participating countries.

British imperial preference remained in place until the UK acceded to the European Economic Community (EEC) in 1973. After joining the EEC, the UK became part of the common market and was required to reduce tariffs on imports from other EEC countries. This effectively ended the system of British imperial preference, as the UK could no longer provide preferential treatment to the countries of the British Empire.

GATT article XXIV

Article XXIV of the General Agreement on Tariffs and Trade (GATT) is a provision that allows countries to form customs unions or free trade areas. Customs unions are agreements between two or more countries to eliminate tariffs and other trade barriers and adopt a common external tariff on imports from non-member countries. Free trade areas are agreements between two or more countries to eliminate tariffs and trade barriers. Still, each country maintains its own tariffs on imports from non-member countries. Article XXIV of the GATT allows countries to form customs unions or free trade areas as long as certain conditions are met. These conditions include: The member countries must eliminate tariffs and other trade barriers between them. The member countries must adopt a common external tariff on imports from non-member countries. The member countries must not discriminate against non-member countries in applying their trade policies. Article XXIV of the GATT has played an important role in facilitating the formation of customs unions and free trade areas worldwide. It has allowed countries to reduce trade barriers and create larger economic blocs that can be more competitive in the global economy. However, the proliferation of customs unions and free trade areas has also led to a fragmentation of the global trading system. It has been criticized for creating imbalances and distorting trade.

Enabling clause (1979)

The enabling clause, also known as the "Enabling Clause of 1979," is a provision in the World Trade Organization (WTO) that allows developing countries to be granted special treatment in trade negotiations. The enabling clause was adopted in 1979 at the General Council of the WTO to address developing countries' concerns about their participation in the international trading system.

Under the enabling clause, developing countries can negotiate trade agreements and commitments more flexibly than developed countries. This allows them to take into account their specific economic and development needs and adopt trade policies better suited to their circumstances.

The enabling clause has played an important role in promoting the participation of developing countries in the international trading system and in helping them to benefit from trade and economic growth. It has also helped to ensure that the interests of developing countries are taken into account in trade negotiations and that they can participate more fully in the global economy.

Rise of new regionalism

The 1950s

The rise of new regionalism can be traced back to the 1950s. The first steps towards European integration were established by establishing the European Coal and Steel Community (ECSC) and the European Economic Community (EEC). These early efforts at regional integration were motivated by a desire to promote economic cooperation and to reduce the risk of conflict in post-war Europe.

In the 1960s and 1970s, regional integration efforts expanded beyond Europe to other parts of the world. This included forming regional trade agreements, such as the North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico.

Despite its commitment to multilateralism, the United States has often supported the development of regional trade agreements, as they can provide economic benefits to the participating countries and can serve as a stepping stone towards broader global trade liberalization. However, the proliferation of regional trade agreements has also been criticized for creating a fragmentation of the global trading system and for potentially undermining the multilateral trading system.

In recent decades, there has been a significant increase in the number and significance of regional trade agreements worldwide. This trend, known as "new regionalism," has been driven by a variety of factors, including technological change, economic globalization, and changes in the global political landscape. The rise of new regionalism has significantly impacted the global trading system. It has led to a proliferation of trade barriers and a fragmentation of the global economy.

The 1980s

In the 1980s, regional integration efforts continued to deepen and expand, with the European Union (EU) adopting the Single European Act (SEA) in 1986. The SEA was a major step towards creating a single market within the EU and aimed to remove barriers to trade and investment within the EU. It also established the principle of "subsidiarity," which holds that decisions should be taken at the lowest possible level of government.

The 1980s also saw the conclusion of several important regional trade agreements in North America. The Canada-United States Free Trade Agreement (CUFTA) was signed in 1988 and came into effect in 1989. It was the first free trade agreement between the United States and a foreign country and was a significant step towards creating the North American Free Trade Agreement (NAFTA), which was signed in 1992 and came into effect in 1994.

NAFTA was a comprehensive free trade agreement between the United States, Canada, and Mexico that eliminated tariffs and trade barriers between the participating countries. It was a major step towards regional economic integration in North America and significantly impacted the global trading system.

The 1980s marked a significant turning point in the evolution of regional trade agreements, as they became increasingly comprehensive and covered a wide range of economic sectors. The conclusion of these agreements marked a shift towards a more integrated and interdependent global economy.

The 1990s

In the 1990s, regional integration efforts continued to deepen and expand, with the European Union (EU) moving towards the creation of a single currency through the establishment of the Economic and Monetary Union (EMU). The EMU was launched in 1999 and involved the adoption of a common currency, the euro, by participating countries.

The 1990s also saw the conclusion of several important regional trade agreements in other parts of the world. For example, in 1991, the Southern Common Market (MERCOSUR) was established as a regional trade agreement between Argentina, Brazil, Paraguay, and Uruguay. MERCOSUR was designed to promote economic integration and cooperation between the participating countries and reduce trade and investment barriers.

In 1992, the Association of Southeast Asian Nations (ASEAN) established the ASEAN Free Trade Area (AFTA), which aimed to promote economic integration and cooperation among the member countries of ASEAN. AFTA was designed to reduce tariffs and other trade barriers between the participating countries and to create a single market within ASEAN.

In addition to these regional trade agreements, the 1990s also saw a significant increase in the number of bilateral trade agreements between countries worldwide. These agreements, typically between two countries, have been used to facilitate trade and investment between the participating countries. The proliferation of bilateral trade agreements in the 1990s contributed to further fragmentation of the global trading system and has been a source of concern for proponents of the multilateral trading system.