	Introduction

Preferential trade agreements (PTAs) comprise a variety of unilateral, bilateral, or regional arrangements which favor member parties over nonmembers by extending tariff and other nontariff preferences. In the post-war period, the European Union (EU) has been central to the proliferation of PTAs. Accession negotiations with both countries have been going on since 2005. Progress in negotiating a comprehensive agreement was limited. Until completion of its recent FTA with South Korea, Europe's PTAs have been characterized by differentiation, flexibility, and relatively modest ambition in terms of market-opening. The EU has differentiated among its partners in terms of provisions and commitments. These numbers can be used to evaluate two arguments that are commonly made about the proliferation of U.S. and EU PTAs: (1) that U.S. firms may face more discrimination and possibly reduced sales than EU firms due to the EU's larger participation in PTAs, and (2) that the EU's larger participation in PTAs may allow it to gain more control over the international trade agenda via extension of its own regulatory regime and standards to its PTA partners. Thus, it is possible to maintain that the EU's PTAs cover nearly twice as much exports in percentage terms (70% versus 40%) and seven times as much in value terms ($3.4 trillion versus $0.52 trillion) than U.S. PTAs. At the same time, this argument may be overstated because the data are upwardly biased due to the fact that the amount of trade covered by preferential agreements is not the same as the amount of trade that is conducted on a preferential basis. Trade Competition

Concerns about falling behind and avoiding trade diversion have arguably been a factor in the two trading partners efforts to negotiate and implement separate but similar PTAs with five trading partners (Israel, Mexico, Morocco, Chile, and Jordan). This does not mean individual companies and workers have not benefitted or that exports have not risen at faster rates as a result of these PTAs, but that in the aggregate many other factors other than PTAs may be determining how well each side does overall in supplying a trading partner with its imports. U.S. FTA Policy

In the past, Europe's preferential trade agreements have had only a small impact on the direction of U.S. trade policy, particularly U.S. FTA policy. An important concern that the EU-Korea FTA raises is that U.S. exporters, particularly manufacturers, will be put at risk due to the duty-free price advantage European-based producers will gain in the Korean market. EU negotiations with Canada over an ambitious and comprehensive FTA could also affect the U.S. FTA debate. Assuming a robust EU-Canada FTA was agreed to, the EU and the United States would then both have a FTA with Canada and Mexico, making the absence of an FTA between the United States and Europe all the more glaring after many years of discussion. Conclusion

It is not clear what direction Europe's PTA policy will head in the future. These would be the handful of remaining countries that fall outside the EU's network of PTAs, namely the United States, China, Japan, and Australia. PTA negotiations with these countries, it is argued, could yield significant economic benefits and provide the biggest impact (for good or ill) on the world trading system. Bigger trade partners such as the United States and China, however, would likely demand openings in agriculture and services, sectors where there is widespread opposition to liberalization.
Preferential trade agreements (PTAs) comprise a variety of arrangements that favor member parties over nonmembers by extending tariff and other nontariff preferences. PTAs, particularly free trade agreements (FTAs), have proliferated in recent years. In the post-war period, the European Union (EU), which is a PTA itself, has developed the largest network of PTAs in the world. The main findings of this report are as follows.
Historically, Europe's PTAs have differed among its partners in terms of provisions and commitments and they have been characterized by relatively modest ambition in terms of market-opening. In comparison, the U.S. approach has been more standardized in terms of its provisions and more focused on achieving reciprocal market access. These differences in approaches, however, have significantly narrowed since the EU adopted its more commercially oriented Global Europe strategy in 2006. EU PTAs cover nearly twice as much trade (exports) in percentage terms (70% versus 40%) and seven times as much in value terms ($3.4 trillion versus $0.52 trillion) than U.S. PTAs. These numbers can be used to support the argument that U.S. firms may face more discrimination and possibly reduced sales than EU firms. At the same time, the data may overstate the degree of discrimination because the amount of trade covered by PTAs is not the same as the amount of trade conducted on a preferential (duty-free) basis. Concerns about trade discrimination have been a factor in U.S. and EU efforts to negotiate and implement separate but similar PTAs with five trading partners (Israel, Mexico, Morocco, Chile, and Jordan). Based on market share data analyzed, neither side appears to have gained a competitive advantage from having negotiated a PTA. This, however, does not mean that individual firms and workers have not benefitted or that exports have not risen at faster rates after the PTA became effective. In the past, Europe's PTA program has not been a major factor affecting U.S. FTA policy, which currently is in flux. However, Europe's recently completed FTA with South Korea raises the concern that U.S. exports will be disadvantaged due to the duty-free price advantage European-based producers will gain in the Korean market. The United States has also negotiated an FTA with Korea, which awaits approval in Korea parliament (Congress approved the agreement in 2011). Ongoing negotiations between the EU and Canada over a comprehensive FTA could also affect the U.S. FTA debate. If a robust agreement is reached, the EU and the United States would then both have FTAs with Canada and Mexico, making the absence of a FTA between the United States and EU all the more glaring after years of discussion.
It is not clear where Europe's PTA policy is headed. There are only a few remaining major developed countries that fall outside the EU's network of PTAs, including the United States, China, Japan, Russia and Australia. While PTA negotiations with these countries could yield large economic benefits and provide a big impact (for good or ill) on the world trading system, some of these countries would likely demand liberalization of European agriculture and services, areas where there is widespread opposition in Europe.