Trade Shaped by Reciprocal Trade Agreements

Trade Shaped by Reciprocal Trade Agreements

Report examines how RTAs have affected trade for the last 31 years.

A new USDA Economic Research Service Report examines the effect of Reciprocal Trade Agreements on commodities and manufactured foods, finding that some countries have experienced expanded trade due to special agreements with exporting countries.

RTAs are an alternative approach to push trade barriers lower than offered by traditional negotiations by the World Trade Organization. RTAs also allow for fewer decision-makers and therefore more comfortable negotiation. However, the report explains that while these RTAs can be beneficial for some, they also have the potential to distort markets and divert trade from other exporters.

Study finds RFAs have risks and rewards.

"RTAs may become 'stepping stones' that lead to more open world markets or 'stumbling blocs' that discriminate against efficient suppliers and undermine support for multilateral trade liberalization," the authors wrote. "Empirical analysis can clarify these effects by gauging the actual impacts of individual agreements."

In studying the effects of the agreements, authors found that exporters increased trade with member countries if both the importer and exporter were part of the same RTA. Additionally, the report explained that external trade also increased for many exporters if they belonged to an RTA.

For the United States, some of these RTAs have actually lowered exports and hurt trade. Study authors note that that "since the time of its inception, the EU curtailed imports of commodity foods from the United States and from non-U.S. suppliers by an annual average of 4 percent and 1 percent, respectively."

The authors say that those declines accumulate over time, and between 1975 and 2005, U.S. commodity food exports destined for the EU dropped 66%. The authors say exports by non-U.S. suppliers declined only 29% during that same time period.

Authors say that the U.S. has also been affected by three other RFAs, including the Asian Nations Free Trade Agreement, the Greater Arab Free Trade Area and the South Asian Preferential Trade Arrangement. The study reports that the only agreement that did not divert trade from the U.S. was the Common Market for Eastern and Southern Africa.

Despite the seemingly problematic trade issues, study authors found that the pros generally outweigh the cons of RFAs in the trade market.

Read the full report here.

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