Deepening of Free Trade Agreements and International Trade: Evidence from China

ABSTRACT

The expansion of FTA rules from the border to the “depth” within the border can promote the reduction of trade barriers between member countries. Yet, this can also increase the cost of compliance. Hence, this research examines the impact of FTA deepening on China’s import and export trade based on the trade data between China and 21FTA partner countries over the period of 2005–2018. This paper introduces the FTA deepening index, constructs a structural gravity model, and empirically applies PPML estimation and instrumental variable methods. The results show that FTA deepening promotes the growth of China’s international trade, and the effect on promoting imports is greater than that of export promotion. Additionally, a heterogeneity test between countries and products is carried out. Based on this, our results reveal that FTA deepening has a more significant promoting effect on China’s trade imports from developed countries and has a more significant restraining effect on China’s exports to developed countries. Furthermore, we demonstrate that the depth of FTA has a less positive impact on China’s agricultural trade than on industrial products.

KEYWORDS:

• FTA deepening
• international trade
• trade rules

JEL:

• F15
• K20
• L88

Acknowledgments

This research is supported by the National Natural Science Foundation of China (Grant No. 71973036).

Disclosure Statement

No potential conflict of interest was reported by the authors.

Notes

1. Data are taken from the WTO-RTA database (https://rtais.wto.org). The authors have calculated the changing FTA trends.

2. Data are taken from the WTO-RTA database (https://rtais.wto.org).

3. Data are taken from FTA database in China (http://fta.mofcom.gov.cn/).

4. International trade data are taken from the China Customs Trade database.

5. 14 clauses including tariff concessions, customs procedures, SPS, and TBT belong to the WTO+ clauses.

6. Holmann, Osnago, and Ruta (2017) calculated the depth of the world’s existing free trade agreements from 2005 to 2009, and found that the median deepening index of global free trade agreements was about 15.

7. The data are taken from the Ministry of Industry and Trade in Vietnam and the UNCMTRADE database.

8. Data are taken from the annual China Agricultural Trade Development Report and the UNCMTRADE database.

Additional information

Funding

The work was supported by the National Natural Science Foundation of China [71973036].