Not As Preferential As You May Think: How Mega-Regionals Can Benefit Third Countries

Abstract

Preferential trade agreements (PTAs) are not as preferential as they used to be. Traditional PTAs mainly exchanged club goods, that is goods or tariff concessions that are non-rivalrous (use by one does not diminish their availability to others) but excludable (some can be excluded from use). Modern PTAs are increasingly providing public goods, i.e. goods or concessions that are non-rivalrous and non-excludable: they are available to everyone irrespective of whether one contributed to producing the good. More precisely, whereas most commitments in traditional PTAs (tariff concessions) were exclusive to PTA partners, many commitments in twenty-first century PTAs are—or ought to be—either de facto or de jure extended on a most-favored nation (MFN) basis to outsiders too, often unconditionally, sometimes conditionally. This contribution explains why this is the case with reference to recent PTAs of the United States and the European Union, especially those with South Korea. It also offers some thoughts on what this means for the global trading system and the World Trade Organization (WTO) moving forward, and why countries might be willing to offer public goods in bilateral and especially mega-regional trade agreements.

This contribution is an adapted and expanded version of Pauwelyn J (2015) Taking the Preferences out of Preferential Trade Agreements: TTIP as a Provider of Public Goods?. In: Morin JF, Novotna T, Ponjaert F et al. (eds) The Politics of Transatlantic Trade Negotiations: TTIP in a Globalized World. Ashgate, Farnham, 187–196.