This chapter takes stock of the dense network of trade agreements in services that has evolved in the East Asian region, and considers some of its prospects in the wake of the withdrawal of the United States from the TPP negotiations. Perhaps surprising for a region associated with booming economies, trade agreements in Asia have not always been driven by economic considerations. At the same time, it remains unclear if services trade has been as much a factor in trade agreement formation as in other regions. Based on DESTA data, the chapter shows that services trade (at least in its cross-border and consumption abroad modes) and PTA formation go hand-in-hand in Asia as well, even though the panoply of agreements remains divided by two different and possibly incompatible approaches, as some countries prefer positive lists and others prefer negative lists. With the United States choosing to withdraw from regional PTA projects for the time being, the positive-list approach looks to be the most common in the near future, while liberalization prospects may be limited.

Mexico attracted investment across a range of business activities, much of it drawn to a huge pool of low-cost labor in the proximity of the US market. As the previous three chapters have shown, not only US firms but also their competitors from non-NAFTA countries invested massively in Mexico. The competitive disadvantages created by NAFTA affected a broad coalition of firms in Europe and Japan, creating a powerful constituency in favor of defensive agreements. But was Mexico an outlier, given its high MFN barriers and proximity to the United States? Do smaller markets also trigger a competitive dynamic?

This chapter offers evidence that Mexico was by no means exceptional. Within few years it became evident that NAFTA was only the first in a wave of PTAs between developed and developing countries. Once policymakers recognized this fact, they became increasingly concerned about the competitive effects of PTAs. The previous chapters have argued that bureaucrats in the EU and Japan explicitly considered these effects as relayed to them by firms and lobbyists. This chapter shows that when competitors began pursuing PTAs with developing countries, US policymakers in turn reconsidered bilateral options. Even though the investment interests were limited to services industries in a small country, and despite a number of political obstacles that had prevented Chile's accession to NAFTA itself, the competition over access to invest in services in Chile generated business support for an FTA in both the United States and the EU.

In the services sector, imperfectly competitive market structures help to drive bilateral agreements, even if a host country has comparatively low multilateral barriers to trade and investment.

When President Salinas traveled to Europe in late January 1990 to advertise Mexico as an attractive investment location, he returned disheartened. European corporate and political leaders, mesmerized by the economic potential of central and eastern Europe emerging from communist rule, showed little interest in Latin America (Cameron and Tomlin 2000: 1–2). Yet in 1999 the EU concluded its first inter-regional FTA with Mexico. Three years later, EU Trade Commissioner Pascal Lamy (2002) referred to Mexico as a beautiful bride between two lovers, whom the EU “would like to tempt … back closer to the centre of the bed, and invite … not to sleep right on one edge of the mattress!”

What had made Mexico so attractive? The country had just emerged from a severe financial crisis that cast doubt on its growth potential over the next years. In European capitals, most government attention was focused on future EU enlargement. Many observers expected the negotiation of the Free Trade Area of the Americas, spanning from the Arctic to Tierra del Fuego, rather than a comprehensive trade and investment deal between Mexico and the then fifteen EU member states.

NAFTA's entry into force, however, fundamentally changed the parameters for foreign direct investment in Mexico. The rapid depreciation of the Mexican peso depressed domestic demand and reduced imports, but made Mexico more attractive as an export platform. Yet to the detriment of outsiders NAFTA ensured that only US and Canadian firms could fully benefit from these developments.

Trade liberalization is a powerful force for increasing the wealth of nations. As an avenue to development, the reintegration of developing countries into the global economy heralds profound changes in North–South relations. The increasing popularity of North–South PTAs, a crucial dimension of this reintegration, is one of the most striking developments in the international trade regime since the end of the Cold War. This study began by asking why these agreements have proliferated so rapidly since the early 1990s.

Most existing explanations tend to lump all preferential trade agreements into the same category. Moreover, much of the public discourse about PTAs focuses on the opening of markets. Yet for developed economies preferential trade agreements with developing countries offer only limited opportunities for exports. What is more, these PTAs often exclude significant shares of trade from liberalization or delay the reduction of tariffs for long periods, precisely in those areas where the participating countries are the most competitive. Other studies argue that the proliferation of North–South PTAs resembles a beauty contest, in which developing countries with the most liberal trade policies are rewarded with access to developed country markets. But these explanations offer little account of the interests of rich countries in signing on to these deals.

Finally, many scholars and practitioners claim that deadlock in the WTO has created the impetus to pursue PTAs. While stalling multilateral negotiations have surely convinced countries of the need to find alternative venues, this explanation can only be a partial account.

It is difficult to overstate the importance of the North American Free Trade Agreement for the evolution of the global trade regime. NAFTA marked the first preferential trade agreement across the North–South divide negotiated under Article XXIV of the GATT. It also signified a major diversion off the course of multilateralism by the United States, the co-founder and often the most important promoter of the international institutions that “embedded” liberalism (Ruggie 1982) in the post-World War II era. The United States had negotiated only two free trade agreements previously – the United States–Israel FTA, signed in 1985 to extend strategic support to Israel (Destler 1986: 26), and the 1987 Canada–United States FTA (CUSFTA), the result of a turnaround in Canadian policy after almost a century of resisting US advances. Neither agreement, however, had much potential to affect outsiders. Israel's regional political isolation left it entirely dependent on European and US trade in any case. Canada lowered its MFN tariffs below US levels in the Uruguay Round and participated actively in the GATS, thereby limiting the discrimination against outsiders.

Mexico's desire to sign a trade agreement with the United States surprised even the most prominent experts and inspired a considerable body of research (Bulmer-Thomas et al. 1994; Cameron 1997; Grinspun and Cameron 1993; Pastor and Wise 1994). Perhaps most importantly, NAFTA became the template for a multitude of North–South agreements across the globe.

Beginning in the mid-1990s, several Latin American countries embarked on policies of preferential trade with regional neighbors, the EU, and the United States. Through the effect on flows of FDI and trade, the influence of these PTAs extended beyond the region. Chapters 4 and 5 have shown how two important agreements were directly prompted by the discriminatory effects of NAFTA. Today, PTAs are a global phenomenon. Even countries in Asia-Pacific, the last region to hold out, have now fully embraced preferential trade agreements.

Japan, drawing on the experience of trade discrimination caused by NAFTA and the successful leveling of the playing field through the Japan–Mexico FTA, has emerged as one of the principal promoters of this development. NAFTA, as the first North–South PTA, set an example of how to facilitate the use of a developing country as export platform while raising costs for competitors. In this chapter, I argue that the Japan–Thailand and Japan–Malaysia FTAs, each officially referred to as an “economic partnership agreement” (EPA), have followed the same model, although several important differences in initial conditions and liberalization outcomes emerge.

In southeast Asia, the “contagion” of the Asian financial crisis forced countries to try to attract more FDI rather than volatile portfolio investment. The crisis thus boosted a process of investment liberalization that had got off to a slow start in the early 1990s, and gave further impetus to the development of the ASEAN Free Trade Area (AFTA) and the ASEAN Investment Area (AIA).