The effects of the GSTP on trade flow: mission accomplished?

Abstract

This paper investigates whether the Global System of Trade Preferences among developing countries (GSTP) achieves its intent to increase the trade of capital goods between member countries. For this purpose, trade data disaggregated by the degree of commodity differentiation and various GSTP regional dummies are employed in a gravity equation. Estimation results say that the value of trade between GSTP member countries has increased significantly since the formation of the GSTP in 1989, and the trade of differentiated commodities has increased remarkably compared with other commodities. Therefore, it can be asserted that the mission of the GSTP has been accomplished successfully.

Notes

Address in Japan (on leave until August 2005) Faculty of Business and Commerce, Keio University 2-15-45, Mita, Mìnato-ku, Tokyo 108-8345, Japan

The Enabling Clause enables developing countries of GATT/WTO members to exchange trade concessions among themselves, and therefore becomes the legal basis for many PTAs among developing countries. The legal name is ‘Differential and More Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries,’ adopted under GATT on 28 November 1979.

The 48 initial signatories to the GSTP are: Algeria, Angola, Argentina, Bangladesh, Benin, Bolivia, Brazil, Cameroon, Chile, Columbia, Cuba, Democratic Peoples Republic of Korea, Democratic Republic of the Congo (former Zaire), Ecuador, Egypt, Ghana, Guinea, Guyana, Haiti, India, Indonesia, Iran, Iraq, Libyan Arab Jamahiriya, Malaysia, Mexico, Morocco, Mozambique, Nicaragua, Nigeria, Pakistan, Peru, Philippines, Qatar, Republic of Korea, Romania, Singapore, Sri-Lanka, Sudan, Thailand, Trinidad and Tobago, Tunisia, United Republic of Tanzania, Uruguay, Venezuela, Viet Nam, Yugoslavia, Zimbabwe.

The Group of 77 was established on 15 June 1964 by 77 developing countries signatories of the ‘Joint Declaration of the Seventy-Seven Countries’ issued at the end of the first session of the UNCTAD in Geneva.

The 43 current members of the GSTP are: the countries in footnote 2, minus Angola, Democratic Republic of the Congo (former Zaire), Haiti, Qatar, Uruguay, Yugoslavia, plus Myanmar.

See van Dijck (1992) for the background and process of GSTP negotiations in UNCTAD.

The effect of GSTP Second Round of Negotiations concluded on December 1998 is excluded from the object of estimation, since data used in this paper cover to 1995.

The reader can see the list of commodity classifications at the website of Professor James E. Rauch (http://www.econ. ucsd.edu/%7Ejrauch/).

Data source is as follows: Trade value: National Bureau of Economic Research, USA, World Trade Flows 1970–1992 (CD-ROM), Institute of Governmental Affairs, University of California, Davis, World Trade Flows 1980–1997 (CD-ROM). GDP, per capita GDP: United Nations, Statistical Yearbook. Per capita GDP is obtained from GDP/population. Great circle distance: G. L. Fitzpatrick and M. J. Modlin (1986), Direct-Line Distances, International Edition.

There are five PTAs, excluding the GSTP, notified to GATT under the provisions of GATT Article XXIV and the Enabling Clause from 1985 to 1990. Among them, the Israel – United States Free Trade Agreement (date of entry in force: 19 August 1985), the European Communities’ accession of Portugal and Spain (1 January 1986), and the Canada–United States Free Trade Agreement (1 January 1989) are the PTAs by developed countries. In addition, the Third Convention of Lomé (1 March 1986) is the replacement for the Second Convention of Lomé, and provides a group of African, Caribbean, and Pacific (ACP) states, mainly former European colonies, with preferential access to the EC market. Therefore, it has a limited new effect on trades between ACP states and the EC, and has negligible effect on trade between GSTP member countries. Furthermore, the Andean Pact (25 May 1988), formed by Bolivia, Colombia, Ecuador, Peru and Venezuela, is also considered to have a limited new effect, since there already exist the Latin American Free Trade Association (2 June 1961) and its successor the Latin American Integration Association (18 March 1981), in which the Andean Pact is a sub-region.

See Johnson (1974) for the difference between Johnson's alternative definition of trade creation and diversion and the original definition by Viner (1950).