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Why Do Developing Countries Want FTAs?

AEI's Phil Levy has written a very thoughtful and provocative new study on Peru's motivations behind entering into the US-Peru Trade Promotion Agreement (PTPA).  In it, Levy examines the evidence and interviews Peruvian business people and government officials to determine why they worked so hard to secure passage - at home and in the United States - and implementation of the PTPA when Peru was already enjoying duty-free access for more than 90% of its US-bound exports.  His findings will surprise most people:


Bilateral free trade agreements have generally been analyzed as instances of preferential reciprocal tariff liberalization. Viewed through this lens, such agreements raise concerns both about new competition and about trade diversion. The United States-Peru Trade Promotion Agreement, an example of a serious North-South accord, demonstrates that new market access was not a principal Peruvian goal in the trade negotiations. Instead, the agreement was intended to encourage investment by locking in Peru's economic reforms. This motivation has very different implications for the global trading system than a quest for preferential access.

Read the whole thing here (PDF). Given the limited scope of the the Peru case study, Levy's findings raise a lot of important questions that demand further research (as he fully admits). But if these conclusions hold, it could have significant implications for the future of US trade policy - for example, (i) how the US targets future developing country FTA partners; (ii) how free traders sell these FTAs to the general public once they're complete; and (iii) how bilateral FTAs fit into a multilateral free trade agenda (i.e., at the WTO).

Great food for thought.