According to Anabel Gonzalez (Brexit, the US, China and the future of global trade-published in the Global Agenda of WEF on 12 February 2018) every country in the world is party to at least one PTA, with Mongolia the last to join the pack when it signed a deal with Japan in 2016.
Gonzalez, member of the World Economic Forum's Future Council on Trade & Investment and former Trade Minister of Costa Rica says Brexit, the US withdrawal from the Trans-Pacific Partnership (TPP), and the renegotiation of the North American Free Trade Agreement (NAFTA) have been a major shock for the world trade system.
Questioning the outcome of this shock Gonzalez asks: Is the world in for a recess, retreat or revamp of regional trade integration? Answering the question, she declares that much would depend on how other key players would respond to this shock.
Conceding that PTAs tend to be a tough political sell, she claims governments pursue them because they increase productivity and benefit consumers; promote economic policy reform; underpin supply chains; and have other positive implications in terms of regional peace and security.
Also, according to Gonzalez, though the estimates of the trade impact of PTAs vary, economists agree that they boost trade among members and hence, have positive effects on growth.
Back in 2016, negotiations on the TPP, encompassing the US, Japan and 10 other countries in the Americas and the Asia Pacific region, and on the Trade and Investment Trans-Atlantic Partnership (TTIP) between the US and the European Union had dominated the headlines.
Expectations were high, as these agreements would cover a significant part of the world trade. There were also concerns.
A report from the World Economic Forum Global Agenda Council on Trade & Foreign Direct Investment had addressed them early on.
Titled 'Mega-regional Trade Agreements: Game-Changers or Costly Distractions for the World Trading System?' the objective of this document was to explore the impact mega-regionals may have on countries that are not part of the negotiations. And the aim was to inform the policy debate on critical issues to shape the global trade agenda.
It highlights opportunities and challenges in promoting the coexistence of these agreements - should they come to fruition - with the multilateral trading system.
This is probably the most important topic in the international trade scenario today. If those negotiations had been successful, there was great potential for unleashing new opportunities and bringing about more growth to the world economy, while injecting dynamism into the multilateral trading system.
But there was also concern that the discrimination they entailed may increase friction in trade relations, fostering greater fragmentation and the weakening of the multilateral trading system. Moreover, there was concern about the geopolitical impact of these agreements.
There was no single view on the impact of mega-regionals on non-members and it was not the purpose of the report to present one. Rather, it showcased different angles of the discussion while highlighting the relevance of consciously facilitating the relationship between mega-regionalism and the multilateral trading system, for the benefit of all countries.
How would these mega-regional agreements shape the global trading system? Would they be game changers or costly distractions? How would they impact non-members and how would they react?
Gonzalez fast forwards to 2018 and finds the situation very different. There has been a shock to the system, in the form of the repositioning of the US and the UK. The US has withdrawn from TPP, suspended TTIP negotiations, launched the renegotiation of NAFTA - with threats to withdraw - and initiated the revision of some specific commitments of the Korea-US PTA.
The UK post-Brexit repositioning involves undoing a very deep trade integration scheme with the EU, and agreeing on new rules of engagement for a future economic partnership, while replicating or renegotiating some 40-odd PTAs that came with EU membership - not a small task.
How will other countries reposition their policies to respond to the current shocks? Is the world in for a recess, a risk of retreat, or a revamping of PTAs? These are the questions of today - very different from those of barely a year and a half ago.
According to Gonzalez among the challenges, there is some interesting news. The EU is leading a broad expansion and modernisation of its already extensive PTA network with recent agreements with Vietnam, Canada, Japan and maybe soon, Argentina, Brazil, Paraguay and Uruguay (Mercosur), among the most prominent. Under the strategy that the best defence is a good offence, the EU is bringing greater predictability to global trade.
"In Asia, countries are also moving forward. Japan has taken the leadership role in what seemed the unlikely resurrection of TPP after the US withdrawal. With just the suspension of a few provisions, the TPP, now renamed the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), will be signed next March by all 12 of the original members minus the US, delivering de facto 18 new PTAs between CPTPP members.
"At the same time, the EU-Japan PTA - also to be signed in March - is a very significant economic co-operation commitment between these two leaders of world trade. Other negotiations are on the way, including the Regional Cooperation Economic Partnership (RCEP), the Japan-China/Korea PTA, and others.
"China's Belt and Road Initiative (BRI) is beyond and above PTAs. It is the most ambitious initiative to improve regional economic integration and connectivity on a transcontinental scale: involving "hard" infrastructure along six overland corridors, with Pakistan participating in one of these corridors (China-Pakistan Economic Corridor) and the 21st Century Maritime Silk Road; "soft" infrastructure, such as the financial system, to enhance efficiency and facilitate economic flows; and policy reforms and institution-building to promote trade and foreign direct investment among the 70 or so BRI countries. There is talk now of expanding it to Latin America or to shipping routes across the Arctic, dubbed the "Polar Silk Road". RCEP, the Japan-China-Korea PTA and other agreements are also moving forward.
"Other regions are also actively engaged. African countries will be signing the Continental Free Trade Agreement (CFTA) next March, building on the regional economic communities to liberalise trade.
"Asia continues to upgrade and deepen existing PTAs and engage in new agreements with non-Asian partners; while in Latin America, there is great excitement around the potential Mercosur-EU agreement and the continued strengthening of the Pacific Alliance, encompassing Colombia, Chile, Mexico and Peru, who are now negotiating "associate membership" with Australia, Canada, New Zealand and Singapore.
"In light of the above, the world is not in for a full retreat on PTAs. While some negotiations have been suspended, important trade agreements are being undone, and uncertainty underpins US involvement in the negotiation of trade agreements; the EU, Japan, China and others have picked up the baton and are leading the world to greater trade cooperation.
"This is a sign of the new times. Their leadership is welcome. It is doing a lot of good in itself, but it is also instrumental in keeping the door open for when others may be ready to come back. In addition, the cost of being left out is greater in a co-operative rather than a divided world, so they are increasing the likelihood that others may be willing to re-engage tomorrow."
A lot is happening on the trade negotiations front in almost every corner of the world. Countries have been active and prolific at the bilateral and regional levels for some time - 432 RTAs have been notified to the WTO. But the key ongoing negotiations are of a different dimension: they involve more partners, from different levels of development and different regions, covering larger volumes of trade, and aiming at reaching agreements of a deeper nature on a wide scope of issues.
If current negotiations are successful, new rules will shape trade and investment flows, underpin global governance on 21st century trade issues and facilitate the proliferation of global value chains.
Their purported emphasis on promoting broad liberalization, reducing non-tariff barriers and addressing regulatory hurdles through greater convergence would unleash new opportunities and bring about more growth to the world economy.
They may also contribute to bringing more dynamism to the multilateral trading system, spearheading a virtuous circle of enhanced rule making and trade liberalization.
Or they may not. Much will depend on the specific provisions to be agreed upon and the type of preference they will create.
Not all preferences are equal. Some of them carry a larger potential for discrimination than others. The greater their discriminatory nature, the higher the friction and fragmentation risks they entail.
On the contrary, provisions with low or no discriminatory potential actually may be quite beneficial for non-members.
This is no minor issue. While mega-regional negotiations encompass a large number of countries, they exclude an even larger group.
About 160 nations, home to over 80% of the world's population, are sitting on the sidelines while these discussions take place. The way in which countries choose to react to these developments may determine, at least in part, the impact of these pacts on individual non-members and on different regions, as well as on countries that are party to the mega-regionals.
The broader question of the geopolitical impact that mega-regionals may have in today's world is an issue that demands great reflection.
The multilateral trading system is not exempt from the impact of mega-regionals. Much will depend on the specifics of the agreements that are finally concluded, and in particular on whether they are crafted with an inclusive perspective and are open to new members.
Much will also depend on whether WTO members opt to advance an ambitious post-Bali multilateral agenda, which could include plurilateral agreements as a way to proceed in consolidating the WTO's centrality.
All of this presumes that mega-regionals will come to fruition as planned, but this cannot be taken for granted. There are big negotiating challenges ahead, and domestic political divisions in participating countries to be bridged. If the mega-regionals fail, the consequences on the potential of trade and investment to continue driving world growth and prosperity will be considerable.
While there is a lot of uncertainty regarding the future and impact of mega-regional agreements, it is clear that this is the topic of choice in the global trade agenda today.