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A preferential trade area (also preferential trade agreement, PTA) is a trading bloc that gives preferential access to certain products from the participating countries. This is done by reducing
tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and pol ...
s but not by abolishing them completely. It is the first stage of
economic integration Economic integration is the unification of economic policies between different states, through the partial or full abolition of tariff and non-tariff restrictions on trade. The trade-stimulation effects intended by means of economic integrati ...
. These tariff preferences have created numerous departures from the normal trade relations principle, namely that
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and ...
(WTO) members should apply the same tariff to imports from other WTO members. With the recent multiplication of bilateral PTAs and the emergence of Mega-PTAs (wide regional trade agreements such as the
Transatlantic Trade and Investment Partnership The Transatlantic Trade and Investment Partnership (TTIP) was a proposed trade agreement between the European Union and the United States, with the aim of promoting trade and multilateral economic growth. According to Karel de Gucht, European ...
(TTIP) or
Trans Pacific Partnership The Trans-Pacific Partnership (TPP), or Trans-Pacific Partnership Agreement, was a highly contested proposed trade agreement between 12 Pacific Rim economies, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singa ...
(TPP)), a global trade system exclusively managed within the framework of the WTO now seems unrealistic and the interactions between trade systems have to be taken into account. The increased complexity of the international trade system generated by the multiplication of PTAs should be taken into account in the study of the choice of fora used by countries or regions to promote their trade relations and environmental agenda. PTAs have seen rapid growth; in the 1990s, there were slightly more than 100 PTAs. By 2014, there were more than 700.


Predictors

In 2004, Scott Baier and Jeffrey Bergstrand published that there were three economic determinants critical to the formation of PTAs. Countries are more likely to participate in PTAs if they have low transportation costs and larger economies. Third, countries with similar economic sizes are likely to benefit the most by forming PTAs. Economic determinants like
GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
, similarity of economic size, and distance between countries correctly predict over 80% of PTAs in effect as of 2020. The remaining PTAs can be attributed to political predictors. Countries under democratic rule are more likely to participate in PTAs than those under autocratic rule. Autocratic rulers are not elected, and thus do not have their power threatened by dissatisfied citizens. Democratic leaders are incentivized to keep their constituents satisfied, and PTAs can help lower the price of consumer goods. Advocating for PTAs also lets democratic leaders signal to voters that they are committed to policies that improve their welfare. Countries are also more likely to join PTAs if competitor countries have already done so.


List of preferential trade areas

A
free trade area A free-trade area is the region encompassing a trade bloc whose member countries have signed a free trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce trade barriers, import quotas and tariffs, and ...
is basically a preferential trade area with increased depth and scope of tariffs reduction. All
free trade area A free-trade area is the region encompassing a trade bloc whose member countries have signed a free trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce trade barriers, import quotas and tariffs, and ...
s,
customs union A customs union is generally defined as a type of trade bloc which is composed of a free trade area with a common external tariff.GATTArticle 24 s. 8 (a) Customs unions are established through trade pacts where the participant countries set up ...
s,
common market The European Economic Community (EEC) was a regional organization created by the Treaty of Rome of 1957,Today the largely rewritten treaty continues in force as the ''Treaty on the functioning of the European Union'', as renamed by the Lisbo ...
s,
economic union An economic union is a type of trade bloc which is composed of a common market with a customs union. The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of produc ...
s, customs and monetary unions and
economic and monetary union An economic and monetary union (EMU) is a type of trade bloc that features a combination of a common market, customs union, and monetary union. Established via a trade pact, an EMU constitutes the sixth of seven stages in the process of economic ...
s are considered advanced forms of a PTA, but these are not listed below.


Multilateral

*
Economic Cooperation Organization The Economic Cooperation Organization or ECO is an Asian political and economic intergovernmental organization that was founded in 1985 in Tehran by the leaders of Iran, Pakistan, and Turkey. It provides a platform to discuss ways to improve de ...
(ECO) (1992) *
Generalized System of Preferences The Generalized System of Preferences, or GSP, is a preferential tariff system which provides tariff reduction on various products. The concept of GSP is very different from the concept of " most favored nation" (MFN). MFN status provides equal tre ...
* Global System of Trade Preferences among Developing Countries (GSTP) (1989) *
Latin American Integration Association The Latin American Integration Association / Asociación Latinoamericana de Integración / Associação Latino-Americana de Integração (LAIA / ALADI) is an international and regional scope organization. It was created on 12 August 1980 by the ...
(LAIA/ALADI) (1981) *
Melanesian Spearhead Group The Melanesian Spearhead Group (MSG) is an intergovernmental organization, composed of the four Melanesian states of Fiji, Papua New Guinea, Solomon Islands and Vanuatu, and the Kanak and Socialist National Liberation Front of New Caledonia. I ...
(MSG) (1994) *
Protocol on Trade Negotiations The Protocol on Trade Negotiations (PTN) is a preferential trade agreement signed on 9 December 1971 with the aim of increasing trade between developing countries in the framework of the General Agreement on Tariffs and Trade. Its entry into force ...
(PTN) (1973) * South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA) (1981)


Bilateral

Several hundred bilateral PTAs have been signed since the early 20th century. The TREND project of the Canada Research Chair in International Political Economy lists around 700 trade agreements, the vast majority of which are bilateral. *
European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...
ACP countries, formerly via the trade aspects of the
Cotonou Agreement The Cotonou Agreement is a treaty between the European Union and the African, Caribbean and Pacific Group of States ("ACP countries"). It was signed in June 2000 in Cotonou, Benin's largest city, by 78 ACP countries (Cuba did not sign) and the t ...
, later via
Everything But Arms Everything but Arms (EBA) is an initiative of the European Union under which all imports to the EU from the Least Developed Countries are duty-free and quota-free, with the exception of armaments. EBA entered into force on 5 March 2001. There wer ...
(EBA) agreements *
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
Afghanistan Afghanistan, officially the Islamic Emirate of Afghanistan,; prs, امارت اسلامی افغانستان is a landlocked country located at the crossroads of Central Asia and South Asia. Referred to as the Heart of Asia, it is bordere ...
(2003) *
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
Mauritius Mauritius ( ; french: Maurice, link=no ; mfe, label= Mauritian Creole, Moris ), officially the Republic of Mauritius, is an island nation in the Indian Ocean about off the southeast coast of the African continent, east of Madagascar. It ...
*
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
Nepal Nepal (; ne, :ne:नेपाल, नेपाल ), formerly the Federal Democratic Republic of Nepal ( ne, सङ्घीय लोकतान्त्रिक गणतन्त्र नेपाल ), is a landlocked country in S ...
(2009) *
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
Chile Chile, officially the Republic of Chile, is a country in the western part of South America. It is the southernmost country in the world, and the closest to Antarctica, occupying a long and narrow strip of land between the Andes to the east a ...
(2007) *
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
MERCOSUR The Southern Common Market, commonly known by Spanish abbreviation Mercosur, and Portuguese Mercosul, is a South American trade bloc established by the Treaty of Asunción in 1991 and Protocol of Ouro Preto in 1994. Its full members are Arge ...
(2009) *
ASEAN ASEAN ( , ), officially the Association of Southeast Asian Nations, is a political and economic union of 10 member states in Southeast Asia, which promotes intergovernmental cooperation and facilitates economic, political, security, militar ...
PR China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...
(2005) * Laos
Thailand Thailand ( ), historically known as Siam () and officially the Kingdom of Thailand, is a country in Southeast Asia, located at the centre of the Indochinese Peninsula, spanning , with a population of almost 70 million. The country is b ...
(1991) *
Bangladesh Bangladesh (}, ), officially the People's Republic of Bangladesh, is a country in South Asia. It is the eighth-most populous country in the world, with a population exceeding 165 million people in an area of . Bangladesh is among the mos ...
-
Bhutan Bhutan (; dz, འབྲུག་ཡུལ་, Druk Yul ), officially the Kingdom of Bhutan,), is a landlocked country in South Asia. It is situated in the Eastern Himalayas, between China in the north and India in the south. A mountainou ...
(2020)


See also

*
Bilateral investment treaty A bilateral investment treaty (BIT) is an agreement establishing the terms and conditions for private investment by nationals and companies of one state in another state. This type of investment is called foreign direct investment (FDI). BITs ar ...
(BIT) *
Trade and Investment Framework Agreement A Trade and Investment Framework Agreement (TIFA) is a trade pact that establishes a framework for expanding trade and resolving outstanding disputes between countries. TIFAs are often seen as an important step towards establishing Free Trade ...
(TIFA).


References


External links


WTO PTA list


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