While only an example, this game illustrates why continuing trust in the willingness of others to cooperate is essential to the future of the GVC-PTA relationship. In the past 25 years, governments signed deep agreements and firms fragmented production internationally. These decisions reinforced each other and sustained a cooperative equilibrium (the upper-left corner). In the next 25 years, changing expectations on the course of policy could lead to a reversal and result in an inferior equilibrium where production processes are progressively renationalized and trade agreements undone (the lower-right corner). This coordination failure can be avoided as long as firms’ expectations of future trade policy will not induce them to opt for national production to which policy makers would respond offering protection and undoing trade agreements.

# **9. Conclusions**

New World Bank data on the content of trade agreements show that PTAs are becoming deeper. This paper reviewed the recent literature on the relationship between the deepening of PTAs and GVC integration. The key points that emerge from this analysis can be summarized as follows: First, economic theory indicates that PTAs and GVC integration are related, as the smooth functioning of cross border production activities calls for the regulation of a number of behindthe-border policy areas. Importantly, the theory also points out that, in a GVC context, PTAs and the multilateral trade system generally complement each other as some policy areas can be more efficiently regulated within smaller groups of like-minded countries. There are, however, many important questions on the relationship between PTAs and GVCs that remain open. One such question is on the content (or, equivalently, the efficient design) of deep PTAs; yet another is on the optimal choice of PTA partners. These are questions that the literature has investigated in models of shallow agreements and national production, but not for deep agreements and GVCs.

Second, thanks to the new data on the content of PTAs and on measurement of GVC integration, some progress has been made to illuminate the extent of the GVC-PTA relationship. First, recent evidence shows that the depth of PTAs boosts GVC integration and that undoing this depth, as in the case of Brexit, is likely to hurt GVCs. Second, the content of PTAs also matters: WTO extra provisions are key drivers of GVCs for North-South PTAs, while WTO plus provisions are important for South-South GVC integration. Third, an analysis of China’s trade agreements indicates that the choice of the “right” PTA partners is affected by the GVC position of a country, stressing the importance of comparative advantage at the task level among other factors.

In closing this paper, I turned to the question of the future of GVCs and deep agreements. I argued that there are reasons for optimism and reasons for concern. In the past 25 years, governments signed deep PTAs and firms fragmented production. These decisions reinforced each other and sustained a cooperative equilibrium. In the next 25 years, changing expectations on the course of policy could lead to a reversal and result in an inferior equilibrium where production is progressively renationalized and trade agreements undone. Continuing trust in the willingness of 19