Preferential trade agreements

Preferential trade agreements (PTAs) have emerged as defining features of the global trading system, despite their origins as exceptions to the General Agreement on Tariffs and Trade's principle of non-discrimination. This entry traces the evolution of PTAs from the postwar multilateral framework to their proliferation in recent decades, examining their economic logic, welfare consequences, and systemic implications. Building on Jacob Viner's classic distinction between trade creation and trade diversion, the analysis highlights both the efficiency gains and potential welfare losses associated with preferential liberalization. The discussion also addresses theoretical designs ensuring welfare-improving agreements and explores PTAs’ interaction with multilateral liberalization, special interest politics, and the rise of global value chains. As multilateral negotiations stagnate, PTAs are likely to remain central to the structure of international trade, shaping both opportunities and challenges ahead.