The Effect Of Preferential Trade Agreement On The Trade Of Paraguay

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Introduction
This paper will aim to examine the effect of the engagement in preferential trade arrangement on the trade of Paraguay. Preferential trade agreements (PTAs) have become a prevalent tool for regional economic collaboration. Despite its recognition and popularity, however, many economists are still skeptical of the effectiveness of PTAs. Preferential trade agreements (PTAs) are critical parts of the world’s current multidimensional trading system. The agreements allow nations to engage in regional or exclusive free trade cooperation. When countries are engaged in a PTA, they jointly allow preferential access on goods and services under the agreement to each other. PTAs introduce a new aspect of international trade for World
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Under this accord, the four countries decided to remove custom duties, and implement a CET, or a “common external tariff” of 35% on certain imports from outside the bloc, and adopt a common trade policy toward outside countries and blocs. According the Council of Foreign Relations article, as a result of this treaty, “trade within the bloc jumped from $4 billion in 1990 to more than $40 billion in 2000”.

Source: UNCTAD

As shown above, regional integration slowed down. This was due to many factors which included the devaluation of Brazil’s currency in 1999 and also Argentina’s financial crisis in 2001. Since that year, trade disputes and other tensions flared between both Argentina and Brazil (Felter, 2017).
The empirical study assessed, which is a paper by Ornelas, Freund, and Estevaderodal (2008) that studies the effects of PTAs on multilateral liberalization, focusing on Mercosur from 1990 to 2001. They use the change in MFN external tariffs as their standard measurement (Estevadeordal, Antoni, et al, 2008). In their empirical model, the change in external tariffs acted as the dependent variable; on the other hand, the main independent variable is the change in preferential tariffs. In their study, they included trade share as an additional variable as an indicator of relative importance of preferential imports. In conclusion, results from their regression showed that Mercosur has been a crucial building bloc to free trade

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