Rozen-Bakher, Z. The Chess Game of Forming International Trade Agreements: Shaping Global Economic and Political Power. Research Paper, PD10. https://www.rozen-bakher.com/research-papers/pd10

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Rozen-Bakher, Z.

The Chess Game of Forming International Trade Agreements: Shaping Global Economic and Political Power

Abstract

This study explores how forming a global map of bilateral, regional and multilateral trade agreements impact the shaping of the economic and political power of a country at the global level. More specifically, the study explores how each type of international trade agreement allows preserving the current position or securing a new position of superpower or ’Bloc Superpower’ or ‘Trade coalition’. The study suggests that forming bilateral trade agreements are crucial to preserve or secure a new position of superpower/’Bloc Superpower’ because it allows creating a global map of bilateral trade agreements with allies or targeted allies, regardless of the geographical proximity. However, regional trade agreements give the opportunity to create a ’Bloc Superpower’ between regional countries that each of them has not enough economy and political power to become a superpower. Nevertheless, the most promising type of international trade agreement is the multilateral trade agreement outside WTO because it allows forming a ‘Trade Coalition’ among a group of allies from different geographical areas, which may result in geopolitics change. The study emphasizes that winning the Chess Game of international trade agreements can be accomplished through getting good conditions of ‘Origin Product’ and ‘Rules of Origin’, still, balancing is needed between ‘Mercantilism style’ and ‘Strategic Ally’ to be a superpower or ’Bloc Superpower’.

Keywords: Economic Power, Political Power, International Trade Agreements, International Trade, Trade Wars

Introduction

The topic of international trade agreements considers the most important issue to advance international trade and FDI (Büthe & Milner, 2008; Dür et al., 2014; MacDermott, 2007).  From the viewpoint of MNEs, free trade agreements (FTAs) provide competitive advantages to an MNE from a home country that has greater lucrative FTAs over an MNE from a home country that has fewer lucrative FTAs.  However, the international relations of a home country with other countries, as well as its geopolitics position (Gupta et al., 2018) alongside its power position at the global level, impact crucially the scope and gainful of international trade agreements that a home country has (e.g. Kelly, 2012; Pastor, 1994; Wang, 2004; Wang, 2005). More importantly, the friendly relations, or vice versa, hostile relations of a home country with other countries, shape the scope and worth of FTAs that a home country has. In other words, the allies of a home country, as well as its enemies/rivals and even the allies of its enemies/rivals determine the scope and worth of FTAs that a home country has.  Hence, the characteristics of foreign relations of a home country with other countries determine the ability of a home country to form greater lucrative international trade agreements compared to other countries, such as the characteristics of foreign relations in terms of allies (Haim, 2016; Gowa, 1994), rivals (Hong, 2007; Corning, 2011), enemies (Liberman, 1996; Nabi & Nasim, 2001), open conflicts (Martin et al., 2012), wars (Barbieri & Levy, 1999), diplomatic relations or lack of diplomatic relations (Abdullah, 2018), boycotts (Stone & Trew, 2019; Weiss, 2007), sanctions (Nasre Esfahani & Rasoulinezhad, 2017), embargo (White, 2019), geopolitics position (Gupta et al., 2018), global power position (Ahumada, 2018; Kirshner, 2007), trade wars (Bouët & Laborde, 2018; Buongiorno & Johnston, 2018; Larres, 2020; Noland, 2017), regional position (Galal & Lawrence, 2001; Lee & Shin, 2006; Lawrence, 2006), membership in defence treaties (e.g. NATO) or in military alliances (Powers, 2004), membership in international organizations (e.g. WTO) (Sachs & Woo, 2003) and more.

In spite of the above, the global order and geopolitics in a specific period of time also impact the scope of international trade agreements of a home country, regardless of the characteristics of its foreign relations. That particularly applies to regional and multinational trade agreements. In other words, there is a difference between a global order characterised by the hegemony of a single superpower and a global order characterised by two, three or more superpowers (Demko, 2018) or even by a ‘Bloc Superpower’.  ‘Bloc Superpower’ refers to a group of allies that have shared power on the rationale of economies of scale (Krugman, 1980; Stigler, 1958), such as the EU bloc that its regional economies of scale have driven the shaping of its position as a ‘Bloc Superpower’. Consequently, the political power of the EU bloc has changed the geopolitics order (Maull, 2005). Nonetheless, ‘Bloc Superpower’ includes countries that none of them is superpowers, such as the EU bloc that its members cannot be considered as a superpower like the USA, even the powerful countries among the EU countries, such as Germany and France. Still, the EU bloc includes enough powerful countries that together they have the ability to become a ‘Bloc Superpower’, and for that reason to change the global order. Notwithstanding, a group of allies from different geographical areas worldwide can establish a ‘Trade Coalition’ based on common interests. Still, the main difference between ‘Bloc Superpower’ and ‘Trade Coalition’ is that ‘Trade Coalition’ may include or not superpowers, while ‘Bloc Superpower’ does not include superpowers, yet the bloc includes enough powerful countries that together create ‘Bloc Superpower’. Given that, the global order since the cold war was transformed from two superpowers namely, the USA and the Union of Soviet Socialist Republics (USSR) to a single superpower-USA until the previous decade (Demko, 2018). However, in the last decade, it has transformed into a new global order that includes at least three superpowers namely, the USA, Russia and China (Hurrell, 2006; Jacques, 2009; Smith, 2012) alongside the EU bloc as a ‘Bloc Superpower’. Therefore, any certain global order impacts the formation of bilateral, regional and multilateral trade agreements at the global level, apart from the international relations of a certain home country with other countries that affect the forming of FTAs.

Considering the above, this study explores how international trade agreements impact the shaping of the political power of a country at the global level.  In other words, the study investigates the forming of FTAs from the viewpoint of obtaining political power. To address it, the study explores the principles of a free trade agreement (FTA) with a focus on the differences between the three main types of FTAs namely, bilateral, regional and multilateral trade agreements to understand how forming a global map of FTAs impact the shaping position of superpower or ’Bloc Superpower’ or ‘Trade coalition’.

The paper is organized, as follow. The next section discusses the principles of FTA to understand the rules of the game of FTAs, while the following section discusses the differences between the three main types of FTAs - bilateral, regional and multilateral - from the geopolitics perspective. The final section presents the conclusions and discusses the implications for policymakers. 

The Rules of Chess Game ─ Principles of FTA: Checkmate via ‘Rules of Origin’

FTA is an international trade agreement between two or more countries. Under an FTA, import tariffs, export duties, quotas and other restrictions and barriers are lifted by the countries, either partially or fully, immediately or gradually, nonetheless, each country maintains an independent trade policy towards other countries that are not parties to the agreement (Gantz, 2003; Krueger, 1997; Lawrence, 2006; O'Sullivan et al., 2008; Plummer et al., 2011; Schott, 2004; Song & Yuan, 2012; Weerakoon, 2001).

Forming any FTA is based on several important principles, yet any FTA is different from other ones because each FTA has a different combination of how the principles of FTA are implemented.  In other words, the combination of how the principles are implemented in the FTA determines the unique characteristics of each FTA. Given that, any political declaration by leaders about achieving FTA with other countries has no significant meaning but how exactly the FTA creates competitive advantages to the country. In other words, it may be wrong to assume that any FTA leads to a Win-Win for all sides. Some FTAs indeed lead to Win-Win, while other FTAs lead to Win-Lose namely, one side has significant benefits from the trade agreement, while other sides have fewer competitive advantages, and in some FTAs, it even may lead to competitive disadvantages that may backfire the national economy. Therefore, how the principles of FTA are implemented from the viewpoint of each side determines if the FTA is Win-Win or Win-Lose.  

Considering the outlined above, FTA is based on several principles, which their combination and implementation determine the specific conditions of each FTA, as follow (Büthe & Milner, 2008; Kepaptsoglou et al., 2009; Gantz, 2003; Krueger, 2012; Mukunoki, 2017; O'Sullivan et al., 2008; Plummer et al., 2011; Song & Yuan, 2012; WTO, 2019):

·      Removal of Direct and Indirect Restrictions. FTA is supposed to lead to the lifting of direct restrictions and barriers, such as import tariffs and export quotas. FTA is also supposed to lead to the removal of indirect restrictions and barriers related to international trade and FDI, such as technical standards, government subsidies, industry regulation, and indirect taxation.

·      Exemptions. Many FTAs include partially or fully exemptions from tariffs and duties on goods between the countries who signed the agreement. That particularly applies in cases of FTAs between developed countries and developing countries or between powerful countries and their allies (Jacobs et al., 2018). Nevertheless, when a country imposes high tariffs, still, it may give exemptions from high tariffs for some products that are required to the local market, such as the exemptions that Trump administration gave to hundreds of types of Chinese products (Cheng, 2019).

·      Non-restrictions on Forming Other FTAs. FTA is based on the important principle that each country has the right to keep an independent trade policy. That's reflected on the right to sign additional FTAs with other countries that are based either on the same or different tariffs and duties. Hence, a country can sign on different FTAs with multiple countries simultaneously, regardless of if those countries have or not FTAs between of them. Nevertheless, this principle does not apply to EU countries because the EU bloc acts as a single country in relation to international trade.  Moreover, a specific FTA of a home country can give an advantage to a certain host country over another one due to superior terms of one FTA compared to inferior terms of another FTA. For example, Israel has several FTAs, such as with the USA, Canada and Jordan, but each of these FTAs has different terms of trade compared to other FTAs (Aminoff, 1991; Azmeh, 2015; Hofley & Gudofsky, 1997; Israeli Ministry of Economy, 2018; Nugent & Abdel-Latif, 2010; Saif, 2006; Tovias & Al-Khouri, 2004). In other words, any trade agreement may have different tariff rates for all products or certain products, as well as for all sectors or certain sectors.

·      ‘Origin Product’ and ‘Rules of Origin’. One of the fundamental principles of FTA is the specific 'rules of origin' of a certain product, which can be different in each trade agreement.  In general, a product is considered as an 'origin product' in FTA when the product is fully produced in the country includes raw materials used in its production. In other words, an imported product, or a product that its production is based on import raw materials cannot be considered as an 'origin product' in FTAs. For example, the different status of North Ireland from other parts of the UK in Boris Johnson's new Brexit deal has become a problematic issue for North Ireland because of the principle of 'rules of origin' that is led to a situation that the 'origin product' of North Ireland is not the same 'origin product' in the rest parts of the UK (Sampson, 2019).

·      ‘Partially Origin Product', Some FTAs also include ‘partially origin product', depends on the specific 'rules of origin' of a product in each FTA. ‘Partially origin product' refers to a product that is fully produced in the country that signed the FTA, but with the ability to use raw materials that imported from a third country. Given that, the same product can be considered as an 'origin product' in one FTA, while in another FTA, it won't be considered as an 'origin product'. For example, the Qualified Industrial Zones (QIZ) trade agreement between Israel and Jordan allows Israel to manufacture products in Jordan and then to export these products to the USA as part of the trade agreement between Israel and the USA, despite that the production does not carry out in Israel but in Jordan (Aminoff, 1991; Azmeh, 2015; Israeli Ministry of Economy, 2018; Nugent & Abdel-Latif, 2010; Saif, 2006; Tovias & Al-Khouri, 2004).

·      ‘Cumulative Rules of Origin Product’. ‘Cumulative rules of origin product’ refers to a product that is considered as an 'origin product', despite that the production is based on raw materials from other countries that have FTAs with the home country.  In other words, in ‘Partially origin product', some of the raw materials can be imported from other countries, regardless if the home country has FTAs with these countries. However, in ‘Cumulative rules of origin product’, the raw materials can be imported from other countries that have FTAs with the home country. Thus, the main difference between them if exist or not FTAs with the countries that the raw materials imported from. Importantly, each FTA has different 'cumulative rules of origin'. Given that, in one FTA, a home country may be able to use raw materials from a specific third country, while in another FTA, the same home country will not be able to use the raw materials from the same third country.

·      Direct Shipping. Direct shipping refers to the principle that an 'origin product' should be sent directly between the countries that signed the FTA. In other words, a home country cannot send products directly from a third country to the destination country unless if the 'cumulative rules of origin' allow sending the product from a third country who has also FTA with the home country. Direct shipping tries to prevent manipulation in the implementation of FTAs because of the concern that a home country will produce a product in a low-cost third country, but still will declare on the product as an 'origin product'.

Simultaneous Exhibition of Multiple Checkmate: Shaping Position of Superpower or ’Bloc Superpower’ or ‘Trade Coalition’ via Forming Global Map of Lucrative Bilateral, Regional, and Multilateral Trade Agreements 

According to the principles of FTA, any country tries to create a map of lucrative bilateral, regional, and multilateral trade agreements to increase the economic power of the country, resulting in shaping the political power position of the country at the global level. However, forming a map of lucrative trade agreements at a country level is not an easy task, and it may be challenging as a Chess Game because of the complexity of the three layers of FTAs namely, bilateral, regional, and multilateral trade agreements. In other words, each type of FTAs - bilateral, regional, and multilateral - has a different way to increase the power of the country at the global level, economically and politically. Considering that, this section discusses the differences between bilateral, regional, and multilateral trade agreements from the viewpoint of obtaining economic and political power. 

Bilateral Trade Agreements

Bilateral trade agreements take place between two countries with friendly relationships and common interests in various fields, such as based on political, economic, technological, and cultural grounds (Abeyratne, 2013; Capling, 2008; Frankel et al., 1997; Moroz & Back, 1981; Sen, 2010; Strodthoff, 2014; Tovias & Al-Khouri, 2004; Urata, 2015; Verico, 2017; WTO-RTA, 2018).

From the viewpoint of MNEs, bilateral trade agreements impact dramatically the competitive advantages of MNEs from home markets that have many bilateral trade agreements over MNEs from home countries that have fewer bilateral trade agreements. In other words, an MNE that its home country has greater bilateral trade agreements, then MNE can gain greater competitive advantages over MNEs from other home countries that have fewer bilateral trade agreements.  Hence, the scope of an MNE activity is not determined only by the ability of the management of an MNE to leverage the firm activities in global markets but it's significantly affected also by the scope of the bilateral trade agreements that its home country has compared to other home countries. Therefore, the activity of an MNE is not determined only by the ability of its management to increase the market size of the firm in host countries but it's also significantly affected by the international relations of the MNE’s home country with other host countries, which is reflected through the scope of the bilateral trade agreements that a home country has compared to other home countries. To illustrate it, Australia and Japan have a bilateral trade agreement (Australia Government, 2019; Capling, 2008; Japan Export.Gov, 2018), but Australia and Israel do not have a bilateral trade agreement. Thereby, this gives to Japanese MNEs competitive advantages in Australia over Israeli MNEs who operate in Australia because Australia and Israel do not have a bilateral trade agreement. In other words, the import tariffs for Israeli MNEs in Australia are higher than those for Japanese MNEs in Australia because Australia and Japan have a bilateral trade agreement. Considering that, the competitive advantages of bilateral trade agreements of a certain home country are determined based on the gap in the import tariffs between the home country and other home countries. Consequently, the price of a product of an MNE in a host country is influenced dramatically by the import tariffs of the MNE's home country in the host country. Hence, the lowest tariff a home country has in a trade agreement with a certain host country, a lower competitive price can be set by an MNE from this home country in the host market.  That's gap can be range from a few percentages to dozens of percentages depending on various factors such as, if exists or not an FTA between the MNE's home country and the target host country, the 'rules of origin' in the FTA, the specific product, the specific tariffs in the certain industry, and even the geographical location in the host country. Importantly, it can be argued that the gap in import tariffs between countries is the foremost ground for trade wars (Larres, 2020) because it reflects the competitive advantage of an MNE in a certain host market over its rivals.

However, it’s important to distinguish between bilateral FTA of ‘regional bloc’ with a single country versus bilateral FTA between two single countries. There are many FTAs between a single country and a ‘regional bloc’ (Rutherford et al., 1997; Siles-Brügge, 2011; Tovias & Al-Khouri, 2004), such as the FTAs between Israel and MERCOSUR (Israeli Ministry of Economy, 2018). This kind of FTA is considered as a bilateral trade agreement because a single country signs an international trade agreement with a bloc of regional countries, so under such agreement, the ‘regional bloc’ acts as a 'single country'. More importantly, countries that are members of a particular regional trade agreement like MERCOSUR have a greater economic and political power to gain better international trade agreements with other single countries compared to any single country among MERCOSUR that will try to form bilateral trade agreements with other single countries. That’s based on the rationale of economies of scale (Krugman, 1980; Stigler, 1958) namely, any group of countries has more economic and political power to form better international trade agreements over a single country among the group in terms of tariffs, 'rules of origin', 'cumulative rules of origin product’ and more. In other words, economies of scale give an advantage to a bigger economy or activity over a small one, so usually, a group of countries has more power to get better FTAs compared to a single country.  The rationale of economies of scale may also explain the criticism against Brexit because it is expected to weaken the economies of scale of the UK, especially if the Union (Union-England, Scotland, Wales and Northern Ireland) will split after the Brexit. Thereby, if after the Brexit, Scotland and Northern Ireland will split from the Union as expectedly (Macnab, 2019), formally or under a different status (Gamp, 2019; Sampson, 2019), then the economic power position of England will be reduced in related to its ability to get good terms of FTAs due to the weakening of economies of scale. In other words, today, the Union (UK) reflects economies of scale of 67 million people (World Bank, 2019) and £1.748 trillion GVA-Gross Value Added (UK-Office for National Statistics, 2018).  However, if the Union (UK) will split after the Brexit as expected, then the economies of scale of England and Wales will be 55 million people and £1.537 trillion GVA (exclude Scotland and Northern Ireland). Nevertheless, the economies of scale of the UK is supposed to be reduced significantly after the Brexit even if the Union won’t split.  The EU bloc reflects economies of scale of 513 million people and $22.0 trillion GDP (PPP) compared to the UK’s economies of scale of 67 million people and $3.1trillion GDP (PPP) (Eurostat, 2019; IMF, 2019; World Bank, 2019). Hence, in any way, Brexit is supposed to weaken the economic power position of the UK (Dhingra et al., 2018), especially regarding its ability to form lucrative FTAs compared to the pre- Brexit period due to the weakening of economies of scale of UK (Stone, 2017). Paradoxically, Brexit leaders have assumed that the Brexit will allow the UK to form greater lucrative bilateral FTAs compared to the pre-Brexit period when the UK was part of the EU bloc. However, based on the principle of economies of scale (Krugman, 1980; Stigler, 1958), it’s supposed to be the opposite. To illustrate it, let’s assume that a single country would like to form a bilateral FTA with a ‘regional bloc’ or with another single country. Thereby, who has more power to get more beneficial FTA, the ‘regional bloc’ that worth $20.0 trillion GDP or a single country that worth $2 trillion GDP?. Obviously, the ‘regional bloc’. Thus, the EU bloc has more power to get lucrative bilateral FTAs compared to the UK as a single country outside the EU bloc. 

In light of the above, the power position of a home country, economically and politically, determines the quantity of lucrative bilateral trade agreements that a home country can form compared to other home countries. Given that, only a home country that succeeds to form many lucrative bilateral trade agreements with other countries can preserve its position or secure its new position as a superpower or part of a ’Bloc Superpower’ or a 'Trade Coalition'. Moreover, under the reality of the global economy in the 21 century, defence capabilities may not be sufficient to preserve position or to secure a new position as a superpower or Bloc Superpower’ but only if the country/bloc also secures their global economy power via FTAs. In other words, globalization has changed the ‘Rules of Game’ of the global order compared to the period of the ‘cold war’. Today is needed a combination of political power via defence capabilities alongside economic power via international trade and FDI to preserve the current position or to secure a new position as a superpower or ’Bloc Superpower’. That's can be accomplished via forming a global map of lucrative bilateral FTAs with allies and targeted allies.    

Regional Trade Agreements

Regional trade agreements take place among a group of countries located in the same geographic region with an emphasis on the trade gain amid the geographical proximity between the countries (Dent, 2003; Fadeyi et al., 2014; Frankel et al., 1997; Koo et al., 1991; Valdes et al., 2015; WTO-RTA, 2018). However, regional trade agreements usually take place between regional countries that have friendly, economic, and political ties (Frankel et al., 1997; Koo et al., 1991; WTO-RTA, 2018), and even the same political ideology or economy ideology. For example, the establishment of the EU bloc began among Western European countries that share the same political ideology of democracy (Magen et al., 2009), and only after that, Eastern European countries have started to join the EU bloc after their transformation to democratic countries (Raik, 2006). Nonetheless, there are Eastern EU countries in which their democracy has started to deteriorate after their joining the EU bloc (Mueller, 2014), such as Hungary and Poland. Thereby, the deterioration of democracy in Hungary and Poland has raised concerns among EU leaders that the current democracy standards in these EU countries contradict the democratic values of the EU bloc (Baczynska, 2020). Notwithstanding, there are regional FTAs among countries that don’t share the same political ideology, such as the new trade agreement of Regional Comprehensive Economic Partnership (RCEP) between 15 countries that including countries like China that has Communist political ideology, while Australia and Japan that have Democracy political ideology (Vu & Nguyen, 2020).

In spite of the above, from the viewpoint of a country, there is a significant difference between bilateral and regional trade agreements. In bilateral trade agreements, exist friendly ties and common interests between the two countries which is the rationale for forming the bilateral trade agreement, regardless of the physical distance between the two countries, such as the bilateral trade agreement between Chile and Australia (Strodthoff, 2014). Hence, in a bilateral trade agreement, the focus is on the friendly ties and common interests between the two countries, rather than on the physical distance, such as the trade agreement between the USA and Israel (Aminoff, 1991; Israeli Ministry of Economy, 2018). In contrast, in regional trade agreements, the geographical closeness provides an economic advantage for the creation of regional trade agreements, such as the MERCOSUR trade agreement in South America that currently includes four full-member countries: Argentina, Brazil, Paraguay and Uruguay (MERCOSUR, 2018). Importantly, regional trade agreements are formed even if the countries in the same geographical area have less friendly ties or have diversity in the economic ideology, such as the diversity in the economic ideology that exists among the EU bloc, such as the Netherlands that has liberal open economy (Sluyterman, 2010), while Portugal that has socialist economy (Hatton, 2019).

However, from the geopolitics perspective, regional trade agreements less impact the ability to preserve position or secure a new position as a superpower compared to bilateral and multilateral FTAs. That's because regional FTAs give the same competitive advantages for all countries that belong to a certain regional FTA. Nevertheless, regional FTAs give the opportunity for the creation of ‘Bloc Superpower’, such as the EU bloc that shapes its position as a ‘Bloc Superpower’ at the global level. Consequently, the political and economic power of the EU bloc has led to a change in the global order, which is reflected in the global decision-making namely, any significant decision at the global level won’t pass without the approval of the EU bloc.    

Multilateral Trade Agreements

Multilateral FTAs refer to international trade agreements among a group of countries with common interests from different geographical areas. The foremost multilateral FTAs is the GATT that was signed after the end of WWII by 23 countries to promote free trade at the global level through reducing or eliminating tariffs without imposing direct or indirect new tariffs (Bhagwati, 2017; Brewer & Young, 2000; Coppolaro, 2018a, 2018b; Dam, 1970; Hamblet, 2011; Srinivasan, 2019; Verwey, 1990; WTO, 2019; Zeiler, 2012). However, over the years, the number of countries of GATT/WTO has increased significantly namely, 62 countries in 1967 (Kennedy Round), 102 countries in 1979 (Tokyo Round), 123 countries in 1994 (Uruguay Round) and 141 countries in 2001 (Start of Doha Round), while today it's includes more than 160 member countries (Coppolaro, 2018b; Evans, 1971; Hamblet, 2011; Kumar, 2018; McRae & Thomas, 1983; Moak, 2017; Preeg, 2012; Ritzer, 2012; Winham, 2014; WTO, 2019). That's mean that WTO includes today most of the countries worldwide. Therefore, multilateral trade agreements under WTO do not impact the political power position of any member country because it's not give any significant advantage for one member country over other ones compared to multilateral trade agreements outside WTO. In other words, the non-discrimination policy of WTO (Hamblet, 2011) has no meaning because each member country has the right to form bilateral, regional and multilateral trade agreements outside WTO (McKenzie, 2010).  This argument may explain the trend of creation of many bilateral, regional and multilateral trade agreements outside WTO (Levy, 1997) over the last two decades because under a large number of member countries (WTO, 2019) GATT doesn’t provide any competitive advantages to any member country of WTO nor protection against discrimination. Nevertheless, WTO could still provide a platform for stabilising global trade to prevent trade wars (Larres, 2020), still, multilateral FTAs under WTO has no impact on shaping the political power position of a country.

However, multilateral FTAs outside WTO can shape the position of superpower or ’Bloc Superpower’ or ‘Trade Coalition’, such as the multilateral trade agreement BRICS that includes a group of five big emerging countries with friendly ties and common interests from three different continents namely, Brazil, Russia, India, China, and South Africa (BRICS, 2018; Jadhav, 2012; Wilson & Purushothaman, 2003). It can be argued that BRICS includes two superpowers namely, Russia and China, so BRICS allow both Russia and China to increase their superpower position, or at least to create a ‘Bloc Superpower’ of five big countries. Notably, BRICS includes around half of the world's population (3.2 Billion people) with a worth quarter of the world GDP (21 Trillion GDP) (World Bank, 2019), so it cannot be ignored in terms of global power.

Moreover, forming multilateral FTAs outside WTO between countries from different geographical areas worldwide allow establishing also ‘Trade Coalition’ based on common objectives or common ideology. However, there is a difference between a ‘Trade Coalition’ and ‘Bloc Superpower’. ‘Bloc Superpower’ does not include superpowers, still, the bloc includes enough powerful countries that together they can influence the global order as a ‘Bloc Superpower’. However, the ‘Trade Coalition’ may include one superpower or even more, which strengthens the position of each superpower while giving benefits to their allies. Alternatively, the ‘Trade Coalition’ can be formed without superpowers based on the rationale that the economies of scale are supposed to increase the power of each member in the coalition. Hence, friendly ties, common political interests, common objectives and similar ideology may motivate countries from different geographical areas to create multilateral FTAs to strengthen their political position via ‘Trade Coalition’.  

Conclusions and Policy Implications

This study explores how forming a global map of bilateral, regional and multilateral FTAs impact the shaping of the economic and political power of a country at the global level. More specifically, the study explores the differences between bilateral, regional and multilateral trade agreements in terms of how each type of FTAs allows preserving the current position or securing a new position of superpower or ’Bloc Superpower’ or ‘Trade coalition’. That’s based on the rationale that the scope of lucrative bilateral, regional and multilateral FTAs that a home country has, impact significantly the shaping of its geopolitics position (Pastor, 1994; Wang, 2004) and power position at the global level (Wang, 2005).  

The study suggests that forming bilateral FTAs are crucial to preserve or secure a new position of superpower/’Bloc Superpower’ because it allows creating a global map of bilateral FTAs with allies or targeted allies, regardless of the geographical proximity. Nevertheless, under this power objective, the superpower/’Bloc Superpower’ may give lucrative FTAs to its allies to preserve its position or to secure its new position as superpower/’Bloc Superpower’, or vice versa, the superpower/’Bloc Superpower’ may force bilateral FTAs on its allies or targeted allies in a ‘Mercantilism style’ (Conti, 2018; LaHaye, 2017; Mun, 1895), such as the objective of ‘America First’ of Trump (Janusch & Mucha, 2017). Nonetheless, under this power objective, the superpower/’Bloc Superpower’ may form bilateral FTAs under three scenarios (S-Superpower/A-ally): Firstly, Win-S/Win-A scenario in case of equal relations between the superpower and its powerful ally. Secondly, Win-S/Lose-A scenario in case of ‘Mercantilism style’ (Conti, 2018; LaHaye, 2017; Mun, 1895). In this case, the superpower/’Bloc Superpower’ may take advantage economically of its allies in return for providing defence assurance (e.g. in case of wars or conflicts) or political backing (e.g. veto on unfavourite voting in United Nations against the ally). Thirdly, Lose-S/Win-A scenario in case of ‘Strategic Ally’. This case particularly applies when at least two superpower/’Bloc Superpower’ compete to preserve or secure special relations with an important ally/targeted new ally. Notably, in the case of ‘Strategic Ally’, the superpower/’Bloc Superpower’ may also provide defence assurance and political backing to its ally as in the case of ‘Mercantilism style’, but without taking economic advantage of its strategical ally. In other words, in the case of ‘Mercantilism style’, the cost of the defence assurance and political backing is on the ally, while in the case of ‘Strategic Ally, the cost of the defence assurance and political backing is on the superpower/’Bloc Superpower’, only for the privilege to be superpower/’Bloc Superpower’. In spite of the above, any country should avoid forming bilateral FTAs based on a Lose-Lose scenario.

The study also indicates that regional FTAs give the opportunity to create ’Bloc Superpower’ between regional countries that each of them has not enough economy and political power to become a superpower by itself, such as the powerful countries Germany and France that none of them has currently the necessary power to become a superpower like USA, Russia and China. Still, under the EU bloc, Germany and France have the ability to lead the EU bloc as a ‘Bloc Superpower’.  

However, the study concluded that the most promising type of FTA in terms of obtaining economic and political power is the multilateral FTA outside WTO because it allows forming a ‘Trade Coalition’ among a group of allies from different geographical areas, which has the potential to change the global order. Nevertheless, forming a ‘Trade Coalition’ can lead to three different scenarios. In the first scenario, the ‘Trade Coalition’ may include at least one superpower/’Bloc Superpower’, which allow increasing the economic and political power of the superpower/’Bloc Superpower’. In the second scenario, the ‘Trade Coalition’ may include several powerful countries without superpowers/’Bloc Superpower’, yet this ‘Trade Coalition’ has the potential to transform into a ‘Bloc Superpower’. In the third scenario, the ‘Trade Coalition’ may include several ‘unimportant’ countries namely, none of them has the political power to form lucrative FTAs by itself but together based on the rationale of economies of scale (Krugman, 1980; Stigler, 1958), they have the ability to form lucrative FTAs.

Finally, when countries establish FTAs, policymakers should look in-depth at the conditions of FTAs in terms of how the ‘Origin Product’, ‘Rules of Origin’, ‘Partially origin product' and ‘Cumulative Rules of Origin Product’ define in the FTA. Policymakers should aware that winning Checkmate in FTAs can be only accomplished through getting good conditions of ‘Origin Product’ and ‘Rules of Origin’.

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