Second, preferential trade agreements have struggled against traditional bastions of protection. Several low-income countries still have weighted average tariffs well above 5% (Figure 1). And even preferential trade agreements have failed to eliminate the high level of protection for a handful of sensitive products, which accounted for 3% of world trade and include agricultural products, textiles and footwear (Figure 2). This criticism should not be interpreted as saying that the World Trade Report 2011 does not take into account preferential trade policy. In fact, the authors note at various times that political factors are essential to understanding PTNs. It is obvious that no one study can cover everything, and this report provides a fresh and insightful analysis of many key features of the preferential trade economy. But it also raises a variety of questions where a more complete understanding of the politics and political economy of OTOs should prove valuable. One of the report`s main claims is that the "traditional theories" of PTNs are designed to explain superficial integration agreements, but do not explain both the causes and effects of deep integration agreements (p. 114).
As a result, the report can be read as a call for further theorization of deep integration, and such research will undoubtedly prove useful. However, the report briefly presents a number of existing political theories that can also shed light on this issue. Some of these theories are briefly discussed in the report (pp. 95-97), but they are not related to the depth of integration. Why is deep integration gaining momentum? First, trade openness increases dependence on policy (spillovers), making unilateral decision-making ineffective compared to decisions taken jointly. A second reason is that deep integration agreements may be needed to promote trade in certain sectors and broader economic integration. This second explanation applies to international production networks that require a governance structure beyond low tariffs. Looking at competition from preferential and non-preferential sources – with the understanding that trade competitors often belong to the same preferential trade agreements – only about 5% of world exports had a preferential advantage of more than 5% and only 3.3% of world exports had a preferential disadvantage of more than 5%. Nepal, Lesotho and Afghanistan, for example, enjoy positive preferential margins of 8.9, 9.2 per cent and 10.5 per cent, respectively, while some countries, including Cuba, American Samoa and Maldives, pay tariffs on their exports that are 4 per cent higher than adjusted levels of competition. However, given the increase in preferential trade agreements, the benefit that a preferential tariff confers on a particular exporter depends not only on the difference between the most-favoured-nation tariff and the preferential tariff, but also on the tariffs faced by competing suppliers from other countries in the same market. Competitively adjusted preferential margins are calculated as the percentage difference between the weighted average tariff rate for the rest of the world and the preferential rate applied to the recipient country, the weights being represented by trade shares in the preferential subsidy market. Unlike a traditional preferential margin, a competitively adjusted preferential margin can take positive and negative values.
A negative value indicates that a particular country is exposed to worse market conditions in a given market than its commercial competitors. The stylized facts presented here about the patterns and extent of preference liberalization may form the basis for a future research program on the implications and determinants of preferential tariffs. .