negotiations. While more research is clearly needed, the possibility is thus raised that governments might achieve e¢ ciency gains in trade agreements that include some deep integration rules. But granting this possibility, what form would such rules take? Could they be provided via modest adjustments to WTO rules, or are deeper forms of integration required? And, if the latter, do PTAs represent the best path forward? Or, might instead deep integration initiatives in PTAs generate third-party externalities and be ine¢ cient from a multilateral perspective?

To date, the terms-of-trade literature has not gone far enough to sort through these possibilities and provide answers. But there is suggestive evidence from a small empirical literature focusing on the trade e¤ects of regional integration of TBT and SPS measures that does point to the potential for important trade-diverting e¤ects of these kinds of agreements, with particular harm to the exports of developing countries not party to the agreements (see, in particular, WTO, 2012, p. 152).<sup>113</sup> We therefore see providing answers to these questions as an important area for future research. At this point, given the broad a¢ nity between the GATT/WTO design and solutions to the terms-of-trade problem, we view the current terms-of-trade strand of the trade-agreement literature as suggesting a presumption that any deep integration that would be required to achieve e¢ ciency (say, due to the presence of private information) is likely better provided within the GATT/WTO than by PTAs.<sup>114</sup> But we also see signi...cant value in further research that explores whether certain forms of deep integration might exist that are achieved most easily among smaller groups of countries at similar developmental stages and that impose little or no costs on third countries. As Maggi (2014) also emphasizes, future research of this kind might explicitly include bargaining frictions, which may be higher for negotiations that involve many countries and complex issues. For such forms of deep integration, the corresponding agreement might be well placed in a PTA or, alternatively, in a plurilateral or critical-mass agreement within the WTO.<sup>115</sup>

# 5.4 The story line continued...

As WTO liberalization e¤orts seem to have stalled, PTA liberalization has taken o¤. Has the explosion of PTAs interfered with the WTO’s ability to deliver countries to the global e¢ ciency frontier? Or are PTAs carrying countries to the global e¢ ciency frontier in ways that the WTO could not? Or, are PTAs succeeding where the WTO could not because PTAs can impose costs on third countries that WTO rules successfully internalize, in which case PTAs are likely moving the

> 113 See, for example, Disdier, Fontagne and Cadot (2015), who ...nd evidence that regional agreements between developed and developing countries that focus on harmonizing standards tend to reduce the exports of the developing country members to third countries, and Chen and Mattoo (2008), who ...nd that regional agreements to harmonize standards can reduce developing country exports from outside the region. The ...ndings of these studies complement the ...ndings of Tintelnot (2014) that we discuss above regarding the potential for deep integration PTAs to impose third-country externalities.

> 114 Even in the private-information models, the underlying problem is still the terms-of-trade problem, and so Nash domestic policies are set e¢ ciently, with the ine¢ ciency amounting simply to a level of market access that is too low. From this perspective, it is not obvious why PTAs would be better than the WTO at providing the degree of deep integration necessary to achieve e¢ cient market access levels in the presence of private information.

> 115 We discuss plurilateral and critical mass agreements further in the concluding section, where we consider potential approaches for strengthening the WTO.

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