Research Of The Effect Of Free Trade Agreements On Vertical Specialization Trade

During the last three decades,Vertical Specialization Trade,which is characterized by the unbundling of production stages,have increased their role in the global economy.At the same time,since the 1990 s,the negotiation of Free Trade Agreements(FTAs)has also accelerated.What's more importantly,more and more “behind the border” provisions contained in these FTAs,such as the “Trade-Related Aspects of Intellectual Property Rights(TRIPs)”,“Labour Market Regulation”,“Environmental Laws”,“Competition Policy”,“Small and Medium-sized Enterprises(SMEs)”,“Movement of Capital”.The concurrent of Vertical Specialization Trade and the growing number of Free Trade Agreements(FTAs)seems to suggest that the presence of a link between these two processes,especially the link between the “deep” FTAs' provisions and Vertical Specialization Trade.This thesis first introduces the development trends of Free Trade Agreements and Vertical Specialization Trade respectively,which shows that,on the one hand,more and more countries resort to the signing of bilateral or plurilateral Free Trade Agreements to deepen their economic relationship.The average number of legallybinding provisions in FTAs has also been slightly increasing.Especially in the AsiaPacific area,where the characteristic of the development trend of "rapid growth,multilateralization,overlap integration,and high standard" is significant;on the other hand,the share of Vertical Specialization Trade of manufacture industries has rapidly been increasing,and the trend is consistent in the Asia-Pacific area.The study of the effect of Free Trade Agreements on Vertical Specialization Trade is based on the case studies,logical deduction and econometric analysis respectively.Case studies of the NAFTA and the CAFTA show that the signing of a Free Trade Agreement does have “magnification effect” on the Vertical Specialization Trade in that area,but they also show some differences at the bilateral level.Which reflects that the "magnification effect" of trade agreements may be influenced by different kinds of factors,such as the country's economic policies,economic scale,factor endowments,productivity level,and integration degree of agreements.The part of logical deduction further gives the key assumptions in this thesis.Unlike traditional final product trade,Vertical Specialization Trade will be more sensitive to changes in trade costs and trade relationship among countries,so that the signing of FTAs will have “magnification effect” on the Vertical Specialization Trade compare to one-way trade.More specifically,on the one hand,since the production of products needs to cross the country's border several times,the impact of the reduction in trade costs will be “magnified”,which can be called “magnification effect”;on the other hand,the cross-border production activities of vertical specialization trade put forward new "customization" requirements for the coordination of the "behind the border" policies among countries.Hence the “deep” provisions in FTAs will promote the increase of Vertical Specialization Trade among members further,which can be called another kind of “magnification effect”.Meanwhile,the thesis also points out that the effect of “magnification” may also be influenced by various factors,such as the rules of a certain provision in FTAs,the domestic production chain,the decision of multinational corporation,the reduction of unilateral and multilateral trade barriers.The econometric analysis is based on the traditional gravity equation,structural gravity equation and pseudo-Poisson maximum likelihood ratio estimation gravity equation respectively.At the same time,the integration degree of FTAs,the different effect of bilateral and plurilateral FTAs,the lag effect of FTAs and the endogeneity problem of FTAs are also considered.The empirical results verify that,on the one hand,the raw materials/intermediates belong to FTAs members are more used and the production linkage among members are significantly increased after signing the FTAs,the “magnification effect” of FTAs on Vertical Specialization Trade does exist;on the other hand,signing the FTAs with a higher degree of integration will indeed promote more fragmented production processes among the member countries,the higher the integration degree of an agreement,the more the Vertical Specialization Trade inside the area,the more the transfer of the production chain from the outside to inside,so the “magnification effect” of “deep” level of FTAs on Vertical Specialization Trade does exist.Finally,considering all the research results above,from the perspective of Global Value Chain,this thesis proposes suggestions regarding China's regional economic integration policy and reacting strategies to the "deep" FTAs trend among other countries in the Asia-Pacific area.