Judit Fabian
Visiting Researcher, Graduate School of Public and International Affairs, University of Ottawa
International trade is often framed in starkly divergent terms: either economies choose multilateral trade agreements (MTAs) and advance the cause of global economic liberalization, or they choose preferential trade agreements (PTAs) and put the entire system at risk. Canada has a long track record of pursuing PTAs and with the Trump administration’s opposition to multilateralism, and longstanding opposition in elements of the Republican and Democratic parties, this trend will likely continue. The question is whether progress will come at the expense of the global trade system.
Some economists believe PTAs to be trade-diverting, reducing trade with more efficient producers outside the agreement. Others insist that PTAs can create trade by shifting production to lower-cost producers in one of the participating economies. One prominent contrary argument holds that PTAs lead to discontinuities in tariff regimes between economies and regions, increasing transaction costs, disrupting supply chains, creating opportunities for corruption and harming global welfare, especially in developing economies.