Reassessing North-South relations: the case of North-South preferential trade agreements

• Pages: 51-66
• DOI: https://doi.org/10.1108/JITLP-11-2015-0040
• Date: 21 March 2016
• Published date: 21 March 2016
• Author: Davit Sahakyan
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade

Reassessing North-South relations:

the case of North-South preferential

trade agreements

Davit Sahakyan

School of International Studies, University of Trento, Trento, Italy

Abstract

Purpose – The purposes of this paper are to provide a new framework for the (re)assessment of

North-South relations, with a specic focus on North-South preferential trade agreements (PTAs);

advance a new mechanism of how rst-order, i.e. Southern countries’ rst, North-South PTAs can affect

the outcomes of second-order, i.e. Southern countries’ subsequent, North-South PTA negotiations; and

re-examine the effects of North-South power asymmetries on the outcomes of North-South PTA

negotiations.

Design/methodology/approach – The paper focuses on how North-South power asymmetries

affect the outcomes of North-South PTA negotiations. It introduces the concept of “rst-order” and

“second-order” North-South PTAs to show that the “order” of an agreement can be a crucial factor in

PTA negotiations. The claims of the paper are also supported by primary data obtained through the

author’s personal interviews with European Union and USA trade ofcials and policy-makers (see

Appendix).

Findings – The paper advances a new theoretical framework that takes a longer-term view

on North-South trade relations, whereby, against the backdrop of the proliferating PTAs, rst-order

North-South agreements can raise the bargaining powers of Southern countries during subsequent

North-South PTA negotiations, with strong implications for both developed and developing countries.

Research limitations/implications – The paper is largely theoretical. A systematic empirical

study of North-South PTAs will be required to validate or refute the theoretical framework advanced in

this paper.

Originality/value – The paper introduces a new variable, namely the “order” of an agreement, which

affects the logic of North-South PTA negotiations. Hence, the paper sets out a new theoretical

framework that allows for a more accurate assessment of North-South power asymmetries and their

effects on the outcomes of North-South PTA negotiations.

Keywords Competitive liberalization, Developing and emerging economies,

North-South preferential trade agreements (PTAs), North-South relations, Regionalism

Paper type Research paper

1. Introduction

The number of preferential trade agreements (PTAs) has increased more than ve-fold

during the past quarter century, reaching more than 400 in 2015 (Sahakyan, 2016). It is

not only the quantity of such agreements that matters, however, but also the terms and

scope of PTAs that have changed to encompass the constantly evolving trends in the

world economy. Given the sharp decline of the average most-favored-nation (MFN)

tariff[1] – the non-discriminative rate of tariffs, which, if offered to one member, should

be made available to the other members of the World Trade Organizations (WTO) –

eschewing high MFN tariffs has become a less important objective for PTA negotiators,

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1477-0024.htm

Reassessing

North-South

relations

51

Received 7 November 2015

Revised 16 January 2016

Accepted 17 January 2016

Journalof International Trade Law

andPolicy

Vol.15 No. 1, 2016

pp.51-66

©Emerald Group Publishing Limited

1477-0024

DOI 10.1108/JITLP-11-2015-0040

which have been focusing on beyond-the-border regulatory measures instead

(Chauffour and Maur, 2011;Hoekman, 2011;WTO, 2011).

In fact, it has been argued that WTO-plus measures of North-South PTAs

signicantly restrict Southern countries’ policy space, dened as “the exibility under

trade rules that provides nation-states with adequate room to maneuver and deploy

effective policies to spur economic development” (Gallagher, 2008,p.63;Shadlen, 2008;

Sahakyan, 2015b). Despite the adverse effects of North-South PTAs on the policy space

in Southern countries, however, these agreements have kept proliferating. The recent

proliferation of North-South PTAs has been explained, among other things, by

“competitive liberalization”, an aggressive US trade policy that has put discriminative

pressure on Southern countries by signing North-South PTAs with their competitors,

forcing Southern countries to choose between joining the bandwagon on terms largely

dictated by the North and being left out while competitors enjoy preferential access to

Northern markets (Gruber, 2000;Zoellick, 2002;DeRosa, 2004;Weintraub, 2004;

Shadlen, 2008). This was enabled by North-South power asymmetries, as “power

disequilibrium” between countries enables stronger parties to extract greater gains from

international trade (Hirschman, 1969, p. 12). This “inuence effect of foreign trade”

raises the bargaining power of economically stronger countries because weaker

countries cannot dispense without trade with it, nor can they replace it with other

countries (Hirschman, 1969, p. 17).

For example, in the wake of the collapse of the USA – Andean talks over a regional trade

agreement between the USA, Colombia, Peru and Ecuador, the USA went bilateral with

Colombia and Peru to achieve the negotiating outcomes it failed to push for during the

Andean talks. Neither Colombia nor Peru could afford to be left out of deeper integration,

while the other signed a PTA with the USA. Hence, both countries had to agree on restrictive

and hitherto unacceptable terms, including in sensitive areas such as intellectual property

rights (IPRs) and agriculture, which were predicted to have negative consequences on the

two Andean countries. Colombian negotiators felt that ‘to sign an FTA with the USA, it is

necessary to pass the “lineas rojas”’, including in measures related to IPRs and agricultural

liberalization (von Braun, 2012, p. 136), but they had to agree on terms proposed by the USA

as the alternative was deemed as less desirable. As a result, both Colombia and Peru signed

separate agreements with the USA on terms largely dictated by the USA (von Braun, 2012;

Interview 2). This view on North-South affairs has largely presented the North-South

preferential trade relationship as essentially a zero-sum game of who gets what share of the

increased pie brought about by non-zero-sum preferential trade liberalization.

This paper introduces a new framework. As discussed above, the utilization of

North-South asymmetries depends on the ability of Northern countries to put discriminative

pressure on non-participant Southern countries and force them to accept the restrictive terms

demanded by the North. However, the paper argues that not all North-South negotiations

share similar features. This study distinguishes between rst-order, i.e. Southern countries’

rst, and second-order, i.e. Southern countries’ subsequent, North-South PTAs and argues

that, while the politics of discrimination are likely during rst-order North-South PTA

negotiations, second-order negotiations follow a different logic. Having secured preferential

access to Northern markets through rst-order North-South PTAs, Southern countries

become immune to discriminative pressures during second-order North-South PTA

negotiations. Moreover, enabled by rst-order North-South PTAs, Southern countries can

JITLP

15,1

52