Preferential Trade Agreements and Trade Liberalization Efforts in the OIC Member States
With Special Emphasis on the TPS-OIC
39
effects of the 2004 EU enlargement have been observed before that date by the trade
liberalisation between the original EU and the ten candidates.
Trade diversion appears more likely in the case of bilateral agreements as opposed to broader
agreements. This is almost certainly because an agreement with more countries is more likely
to have a included a more efficient country thus increasing the probability of trade creation.
This result is very interesting as it is consistent with one of the rule of thumb in the analysis of
FTAs in the Sussex Framework (Evans et al, 2006). This result seems to be in line with
previous findings and suggests that agreements including many countries are more likely to be
dominated by trade creation.
An alternative approach is the one followed by (Isakova, Koczan and Plekhanov, 2013) in their
exercise evaluating the Belarus, Kazakhstan and Russia customs union. They estimate the
standard model but using the change in the exports to each partner (the custom union and
other important partners) against the change, among other variables, in the bilateral tariffs.
Their results are consistent with the existence of some trade diversion effects against
Kazakhstan, likely to be explained by the increase in its applied tariffs as they converge to the
common external tariffs. Results on Belarus and Russia do not point to the existence of
relevant trade diversion phenomenon.
Partial equilibrium analysis has also been used to analyse the effect of FTAs. The main feature
of partial equilibrium is that each market (product or sector) is treated in isolation from the
rest of the economy and no relationship is specified with other substitutes or inputs and
factors markets. As a consequence, the aggregation of results tends to present a problem as
each market is cleared independently. However, a main advantage is that is possible to work
at very detailed levels of disaggregation (tariff lines) and if data is not a concern, it is possible
to consider also the effects on the domestic market. This means that is possible to obtain
results for trade creation and trade diversion at the product level.
Evans, Gasiorek and Robinson, (2007) using 4-digit HS tariff lines applied partial equilibrium
analysis to China’s trade and found some evidence of possible trade creation (in order of
magnitude of effect) in potential FTAs with the EU, NAFTA and the East Asia. How- ever, they
also found that similar effects would be obtained (for China) by reducing across the board
tariffs by 50%. On the other hand, they have been used to analyse trade policies in particular
markets such as the tariff rate quotas for beef in the EU (Ramos, Bureau and Salvatici, 2007). In
this sense, they could be used to analyse in detail the welfare effects of free trade agreements
in particular markets.
An additional recent application of partial equilibrium analysis has been the analysis of FTAs
on excluded countries. (CARIS, 2011) presents a partial equilibrium analysis on the effects of
the South East Asia integration on the European Union. More recently, (Rollo et al, 2013) used
a partial equilibrium analysis to evaluate the effect on some vulnerable countries of the EU-US
TTIP. The report finds that the mega regional agreement is expected to have minimum effects