Industrialization under the WTO : the impact of asymmetric free trade agreements on middle-technology developing countries

Abstract

This dissertation addresses the issue of industrialization in the WTO regime, focusing on the role of asymmetric free trade agreements. It proposes a framework where free trade agreements offer payoffs that countries have not been able to achieve through their WTO commitments. To evaluate these payoffs, I explore the mechanisms through which selected features of free trade agreements are translated into commercial outcomes. The central conclusion of this thesis is that free trade agreements provide developing countries with additional policy flexibility that is often not used to its fullest potential. Existing work on individual features of free trade agreements has focused primarily on those features that further constrain domestic policy options; the proposal that they may also expand policy options has been largely overlooked. It is a fact that in the WTO regime, the trade policy options available to developing countries have been restricted relative to the set that was available to their predecessors. Developing countries actively agreed to these restrictions with the expectation that growth and development would result from their participation in the WTO regime.

(cont.) This unfulfilled expectation, in combination with a multilateral negotiation structure that is characterized by collective action problems, creates an incentive for WTO members to form supplementary trade associations as they seek to move forward politically and economically. Yet given that free trade agreements are also characterized by an uncertain payoff, this dissertation seeks to provide evidence that they do in fact result in positive industrial outcomes. The model I use here also explains why free trade agreements are able to deliver results that similar unilateral initiatives do not. I use the case study of the U.S.-Chile FTA to test the theory on a developing country that has specifically targeted free trade agreements as a feature of its industrial strategy. Empirical data from both the negotiation process and commercial outcomes illustrates that in terms of the expected payoffs of export diversity, increased bilateral trade and industrialization in general, free trade agreements offer countries the ability to design and implement elements of an interventionalist industrial strategy that is consistent with their WTO commitments.