The Effect Of The Deep Integration Of FTA On Value Added Exports

As the negotiations of WTO stalled,bilateral and multilateral free trade agreements are favored by more and more countries.Up to Sep 2019,the WTO has received 481 FTA notifications,among which there 302 are in force.As the quantity of FTAs grows,the quality of FTAs has been improved.The topics they covered are gradually expanded and deepened.There are 14 free trade agreements that China has signed and entered into force with different economies,involving 22 countries(regions).The FTA signed in recent years cover a wide range of topics.In addition,the FTAs that have been reached formerly are experiencing a new round of upgrades.For example,the China—ASEAN FTA Upgrade Agreement was signed in the year of 2015,which shows that the construction of China’s FTA is moving toward a high level.With the development of free trade agreements,international trade has been further expanded.The international division of labor has also changed from the specialize in specific products to the specialize in specific production progress.As a consequence,the international production chains have been further lengthened.With the repeatedly import and export of the intermediate products,the trade volume is also calculated repeatedly,causing the incorrect reflection of the interest distribution among different economies.The division of labor in the global value chain puts higher demands on trade statistics.In this context,the calculation of trade in value-added has emerged and it has become a key indicator to measure a country’s position in the GVCs.The previous studies have shown that FTAs can significantly promote the development of international trade.As an effective policy tool,FTA depth can quantify the level of cooperation between countries,and the trade in value-added can be used to measure the association of the international division of labor between two countries.Then does the deepening of FTA helps to strengthen the TiVA between countries?To answer this question,this paper firstly puts forward to theoretical mechanisms of the FTA depth on the value-added linkage.Summarizes the characteristics of the FTA and the trends of TiVA between China and its FTA partners.Then based on the PTA dataset provided by the World Bank,this paper quantifies the depth of the FTA topics with HMS measurement method.Categorized by "coverage" and "legal enforceability",we create indicators like total depth,core depth,WTO+depth,WTO-X depth and tariff depth.Then we use the export of added-value from China in the consumption of partner countries to measure the TiVA.After creating of the indicators above,we use the extended gravity model to examine the impact of deep integration of FTA on TiVA.We adopt the PPML regression with the fixed effect to testify the robustness of the model after the benchmark estimation.Then we do further research by countries and industries.The estimation results reveal that the deep integration of FTA can promote value-added among member countries,and the tariff index plays the most obvious role,which show that the tariff reduction is still key to the global production network.Secondly,we found that the WTO+topics have greater effect than WTO-X does for the developing countries.Finally,we compared the impact by countries and industries and the results show that the effect is greater on developing countries than developed ones,service sectors than manufacturing sectors.Based on the above analysis,the paper concludes that the FTA and the current multilateral trading system should complement each other and serve the global value chain together.At the same time,tariff measures are still important for international trade so that it cannot be ignored in FTA negotiations.The international division of labor in the service industry puts forward higher requirements for the deep integration of trade policies between countries.We should gradually open of the service sectors and stimulate the competitiveness of the domestic service industry.