weaker relative to advanced economies. North-South deep trade agreements offer an anchor to boost GVC participation of developing countries by providing a commitment device to border and behind the border policies. Since tariffs between developing countries are often still high, South-South PTAs affect GVC participation mostly through traditional trade liberalization.

To investigate the effect of the content of PTAs depending on the level of development of the countries involved, Osnago, Rocha and Ruta (2016) run three regressions on different groups of countries: North-North, North-South, South-South. To allow for a broader sample of countries, data in trade and parts and components are used in these regressions to measure the extent of GVC integration among country pairs. In each of these regressions the key explanatory variable is no longer the depth (i.e. the number of provisions covered by the agreement) but the number of WTO plus and WTO extra provisions in a PTA.

The regression analysis shows that the content of PTAs matters for GVC integration, and the impact varies by income groups. Provisions outside the current WTO mandate (e.g. investment, competition policy) drive the effects of North-South trade in parts and components. The impact of an additional WTO extra provision in a North-South PTA increases GVC integration by 4.3 percent. Provisions under the current WTO mandate (tariff reduction, etc.) drive the effect of deep PTAs on South-South trade in parts and components. Each additional WTO plus provision boosts South-South GVC integration by 8.3 percent.

# **7. GVCs and the Choice of PTA Partners**

This section studies countries’ choice of PTA partners. We can look at this question from a normative and from a positive perspective. From the first point of view the issue is whether the international fragmentation of production changes the merits of regionalism relative to multilateralism. From a positive perspective, instead the question is whether the presence of GVCs (or the possibility to anchor a country to them) changes the way countries select their trading partners. I briefly look at both issues from a theoretical perspective and then discuss an application of this question to China.

The debate on the merits of regionalism versus multilateralism dates back at least to Viner (1950). In traditional models, where production is entirely national and tariffs are the sole instrument of trade policy, PTAs are sub-optimal to a multilateral agreement from a global welfare perspective. Preferential arrangements may still be efficient from the perspective of an individual country both for economic and non-economic reasons. First, countries may benefit from a PTA to the expense of other countries not included in the agreement. This would be the case where exports from members displace exports from non-members. Second, countries may have non-economic reasons to sign trade agreements, as PTAs can strengthen security ties or work as a building block for political integration. As these arguments are non-economic in nature or beggar-thy-neighbor, PTAs are an inefficient substitute for multilateral trade liberalization from an economic point of view.

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