The de facto preferential trade agreement in East Asia

Abstract

East Asian countries apply lower tariffs on their neighbors’ products than they are required to under the various trade agreements to which they belong, a concession they grant only rarely to countries outside the region. The result is a de facto preferential trade area in East Asia in which applied tariff rates significantly undercut the legally bound rates. This gap, termed binding overhang, is an under-studied aspect of international political economy, but provides information about the nature of East Asian regionalism. To wit, the regional bias in applied tariffs is driven by transnational production networks that must move components across borders, not geopolitics or state preferences for increased regional integration. This finding supports a ‘bottom up’ interpretation of East Asian regionalism.

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