root cause of the WTO’s current woes rather than its legitimate successor.

A third possibility is that governments may have already achieved the international e¢ ciency frontier under the GATT/WTO liberalization process –or if not yet, they could achieve it with selective ...xes –so that the WTO is in better shape than it appears; and rather it is the kind of additional liberalization associated with the recent rise of PTAs that represents a failure of e¢ cient international trade policy cooperation. With this interpretation PTAs are liberalization run amok.

In this paper we make use of a growing economics literature on international trade agreements to sort through these interpretations and suggest answers to the questions posed above. To facilitate our discussion, we adopt a simple organizing principle: we group papers in the literature by their stance on what makes a trade agreement valuable to its member governments, that is, by the nature of the “problem”that a trade agreement is supposed to “solve”for its member governments. According to this organizing principle, there are four strands of the literature.

The oldest and most established strand of the literature is the “terms-of-trade”theory of trade agreements. This theory posits that governments use trade agreements to undo the policy ine¢ - ciencies that are associated with unilateral policy choices when those choices can shift the costs of intervention onto trading partners through movements in foreign exporter prices (terms of trade). In this theory, addressing an international externality (which travels through the terms of trade) is the central purpose of a trade agreement. The “commitment”theory also has a well-established history in the literature, but here the central role for an international externality is absent. Instead, governments value trade agreements as a way to tie their hands (make commitments) against their own lobbies and citizens. The two remaining strands of the literature, what we call the “delocation/pro...t-shifting”and the “o¤shoring”theories of trade agreements, are more recent arrivals. They can be viewed as attempts to identify new international externalities that go beyond the terms-of-trade externality to include the local prices in each country, and that can give rise to and shape international trade agreements. The delocation/pro...t-shifting theory argues that such non-terms-of-trade externalities have been important for understanding real-world trade agreements all along, while the o¤shoring theory suggests that non-terms-of-trade externalities may only have become prominent with the recent rise of o¤shoring and international supply chains.

As might be anticipated, the strength of the literature’s support for the various interpretations of recent developments depends on which purposes are central to real-world trade agreements. While we discuss below evidence that lends support to all four theories, a growing body of evidence points to the terms-of-trade theory as central for understanding the actual trade agreements that we see. We therefore ...rst evaluate these developments from the perspective of the terms-of-trade theory, surveying both the theoretical and empirical literature to assess the various interpretations and establish some initial answers. We then survey the commitment, delocation/pro...t-shifting and o¤shoring theories, describing where they yield di¤erent assessments of these interpretations, and we utilize this description in combination with a survey of the relevant empirical literature to suggest quali...cations to the answers provided by the terms-of-trade theory.

To preview, the literature we survey does not support the view that the WTO is passé. On 2