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New report shows the effects of EU regional trade agreements, EU and WTO membership on trade in goods

2019-11-11

EU regional trade agreements increase trade in goods by an average of 48 percent. The higher the level of ambition, the higher the effect. However, even in comparison with the most ambitious trade agreements the EU membership provides four times higher trade in goods, according to a new analysis from the Swedish government agency National Board of Trade.

Portrait of Per AltenbergPer Altenberg, senior adviser and one of the authors of the report, what questions does it answer?
– The report analyses the effect of EU regional trade agreements on trade in goods. It tells us how much trade increases as a result of trade agreements between the EU and other countries.

– We have also analysed how membership in the EU and the WTO affect trade in goods. This allows us to compare different trade policy strategies.

What is the motivation for the report?
– There are few studies that have analysed effects of EU RTAs specifically. Given that the EU has negotiated many regional trade agreements in recent years, it is important to analyse how effective they are. Another motivation comes from the fact that, in order to have positive overall welfare effects, trade agreements must first stimulate trade.

What are the most important conclusions?
– On average, EU RTAs increase trade between the EU and its partners by almost 50 percent, but the effect differs greatly between different types of agreements. Some agreements stimulate trade a lot, while others have no effect at all. Therefore, the level of ambition is crucial.

– The analysis shows that the trade effect of EU membership is four times larger than the impact of CETA-style (EU-Canada) free trade agreements. Even if CETA is an ambitious free trade agreement, it turns out that there is still a big difference compared with trade arrangements that provide deep integration. Such information is important, not the least for countries that currently negotiate for EU accession or candidate status, for instance Albania, North Macedonia, Montenegro and Serbia. It is also an important in a Brexit context when the UK decides on its future level of EU integration.

– Our analysis also reveals that influential WTO members such as the US, China, and India have had particularly large trade effects from their WTO membership. The trade effects associated with WTO membership are well above average for these countries.

Was there something in the analysis that surprised you?
– I was surprised that there is such a big difference in effect between deep agreements, such as the EEA (EU-Norway/Iceland) and CETA-style FTAs.

– There were also agreements, where we did not pick up any trade effect at all, such as the agreement EU–Mexico or EU–South Africa. Nor did the so-called EPA agreements between the EU and a number of countries in Africa, the Caribbean and the Pacific indicate any trade effects. We have not analysed the reasons for this, but it could be about the level of ambition.

What are the most important results for Sweden?
– When it comes to Sweden, it is even clearer that deep agreements (with Norway, Switzerland and Turkey) have had the greatest impact on our trade. Since Norway is also by far Sweden's largest trading partner outside the EU, you could say that there is dual effect. The bottom line is that the EEA has stimulated a lot of trade for both Sweden and Norway and that this agreement is more important for us than any other EU regional trade agreement.

– Another thing that surprised us is that the effect of EU membership for Sweden is below average among EU countries. The effect is still strong – EU membership has more than doubled Sweden's trade with other EU members – but Sweden only ranks 19 out of 28 member states. It could be due to a number of different factors – for instance that geographically peripheral countries experience weaker effects. Other possible explanations are that Swedish trade is dominated by large firms that internationalized at an early stage, that EU membership has stimulated trade in services more than trade in goods for Sweden, or that Sweden is not a member of the Eurozone.

Who do you want to read the report and why?
– We hope the report will be helpful for European policy-makers who want to learn more about different types of EU RTAs and the significance of different levels of ambition. Moreover, that they do not reduce the level of ambition when negotiating trade agreements in the future.

– I hope that, for instance, EU and UK trade negotiators note the large difference between the trade effect of a customs union and a CETA-style free trade agreement. Also, that trade policy makers in the US and India see that they have in fact benefitted greatly from their WTO membership.

Report
The trade effects of EU regional trade agreements – evidence and strategic choices

Contact
Per Altenberg
Tel: +46 8 690 4926
per.alt...@kommers.se

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National Board of Trade, P.O. Box 6803, SE-113 86 Stockholm. 
Visiting Address: Drottninggatan 89. 
Phone: +46 8 690 48 00     Fax: +46 8 30 67 59

E-mail: kommersk...@kommers.se

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