future of the GVC-PTA relationship will crucially depend on continuing trust in the willingness of other partners to preserve an open trading system.

The rest of the paper is organized as follows: Section 2 documents the evolution of preferential trade agreements. Section 3 focuses on GVCs and the rationale for (deep) PTAs. Section 4 studies the impact of trade agreements on GVCs. Section 5 focuses on how the exit of the UK from the EU (Brexit) may impact UK-EU GVCs. Section 6 investigates how the content of PTAs affects GVCs. Section 7 addresses the question of the choice of PTA partners in a GVC context. Section 8 speculates on the future of PTAs and GVCs. Concluding remarks follow.

# **2. Evolution of Preferential Trade Agreements**<sup>**4**</sup>

The number of preferential trade agreements has increased dramatically in the last quarter century. Fifty trade agreements were in force and notified to the WTO in 1990. The number was 279 at the end of 2015. This dramatic change has spurred a large debate among researchers and policy makers on the rationale for preferential arrangements, their impact on trade flows, growth and welfare of member and non-member countries, and their relationship with the broader system of global trade governance. A large body of literature has been devoted to investigate these and other issues.<sup>5</sup> In this section, I present new evidence on the evolution of PTAs as a basis for a discussion on the relationship between trade agreements and global value chains.

An often overlooked factor in the literature on trade agreements is that, alongside their increasing number, the content of PTAs has changed over time. While before the 1990s trade arrangements mostly involved tariff reductions, more recent PTAs include a set of provisions covering policy areas that go well beyond that. Specifically, two recent studies (Horn, Mavroidis and Sapir, 2010; WTO, 2011) document how several trade agreements cover regulatory issues such as services, intellectual property rights protection, investment, competition policy and others. Building on the methodology developed in these studies, Hofmann, Osnago and Ruta (2017) collected information for all preferential trade agreements in force and notified to the WTO in 2015. Their new database contains information on the inclusion and legal enforceability of 52 policy areas in 279 PTAs among 189 countries.<sup>6</sup> Some novel stylized facts emerge from an analysis of the new data on PTAs. First, the database can inform on the changing content of PTAs. Figure 1 reports the evolution in the cumulative number of preferential agreements over time (the solid line) and the number of policy areas that are covered by newly signed agreements in each year (the shades of color in the histograms). As

> 4 This section draws on Hofmann, Osnago and Ruta (2017).

> 5 See Freund and Ornelas (2010), WTO (2011) and Limao (2016) for recent surveys of the literature on preferential trade agreements.

> 6 This database offers the most comprehensive and up-to-date data available in terms of the number of trade agreements, countries, and policy areas covered. The database is freely available on the World Bank website at <u>http://data.worldbank.org/data-catalog/deep-trade-agreements.</u>

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