Policy Anchors: Do Free Trade Agreements and WTO Accessions Serve as Vehicles for Developing-Country Policy Reform?

40 Pages Posted: 11 Apr 2006

Date Written: April 5, 2006

Abstract

It is sometimes claimed that free trade agreements (FTAs) between large countries and smaller developing countries serve as "policy anchors" by acting as a mechanism for the smaller developing country to make credible commitments to policy reform which they might not otherwise make. Such policy commitments are likely to take place while the agreement is being negotiated. This paper presents some stylized facts about recent U.S. FTAs and recent accessions to the WTO which may be relevant in assessing the claim that either process acts as a "policy anchor". These include the following: (1) U.S. FTAs are generally negotiated much more quickly than WTO accessions. (2) The length of time it takes to negotiate an FTA or accession varies widely. Agreements with larger economies and economies with weaker initial policies appear to take longer. (3) Recent U.S. FTA partners begin negotiations with a stronger policy environment than recent WTO accession candidates, indicating a selectivity phenomenon. (4) An analysis using the World Bank's "Governance Matters" indicators shows no apparent relationship between the period of negotiation or engagement and improved governance. The trade component of the Heritage Foundation's Index of Economic Freedom does show a consistent pattern of improvement, but other sub-indicators are likely to deteriorate. (5) Particular experiences are likely to be highly country-specific.

Keywords: WTO, FTAs, policy reform, governance

JEL Classification: F13, O19

Suggested Citation

Ferrantino, Michael J., Policy Anchors: Do Free Trade Agreements and WTO Accessions Serve as Vehicles for Developing-Country Policy Reform? (April 5, 2006). Available at SSRN: https://ssrn.com/abstract=895272 or http://dx.doi.org/10.2139/ssrn.895272

Michael J. Ferrantino (Contact Author)

Trade Policy Research Forum ( email )

13 Yucca Drive
Fredericksburg, VA Virginia 22405
United States

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