A New mechanism for trade agreements to revitalize the global value chains

Himanshu Jaiswal () and A. Ganesh Kumar ()
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Himanshu Jaiswal: Indira Gandhi Institute of Development Research
A. Ganesh Kumar: Indira Gandhi Institute of Development Research

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: The import tariff system has made a harmful dent on the global trading system. To avoid this, many countries have chosen the second-best option- `an FTA'; because the first-best where there is no tariff at all in the global trading system is close to impossible to achieve. FTAs due to their structural factors like, stringent Rules of Origin and other non-tariff measures have not been very successful. Also, they have been labelled as discriminatory to non-partner countries. Despite having a potential of establishing and strengthening the Global value chains, FTAs have done a dismal work in dimension too. To overcome this limitation, we propose in this article a new mechanism called `Sectoral Trade Agreement (STA)' which is an FTA among all major producing countries in a particular sector or industry. An STA in automobile sector will be compared with the traditional bilateral FTA with different utilization rate. In our CGE based study, Welfare as a total rises in STA in comparison to FTA scenarios and this is increasing for some non-participating blocks also. It is also shown here how a composite scenario where both FTA and STA are functioning is a better option for trade liberalization and how this is a new 'second-best'.

Keywords: Free Trade Agreement; Rules of Origin; Global Value Chain; Preference Utilization; CGE Analysis (search for similar items in EconPapers)
JEL-codes: F13 F15 F17 F47 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2024-02
New Economics Papers: this item is included in nep-int
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