Firm Heterogeneity and Asymmetric Liberalization Drive Differential Utilization of FTAs among Firms in Production Networks

Abstract

Firms in production networks often favor liberalization through free trade agreements (FTAs) over multilateral liberalization because of its potential discriminatory effects against firms outside the FTA, but also, as this article explores, relative to competing firms within the FTA area. The selectivity and flexibility inherent in FTA liberalization accommodate heterogeneity among firms in trade preferences, incentivizing them to lobby individually for specific FTA design configurations aligned with their particular production organizations. This article theorizes how the interaction between two variables—(1) inter-firm heterogeneity in production organization and (2) asymmetric liberalization through FTA design configurations—determines heterogeneity in FTA utilization among firms, favoring some over others within the trade area. These arguments are examined in the context of the Thai automotive industry and the FTAs signed by Thailand with other Southeast Asian countries, Japan, India, and Australia, drawing on interviews and administrative records. The empirical evidence supports the explanatory power of these variables in accounting for inter-firm heterogeneity in trade preferences, lobbying patterns, and FTA utilization. Automakers lobbied for FTA configurations that selectively liberalize their trade flows relative to competitors within the trade area, primarily using FTAs for hierarchical and captive cross-border input trade with subsidiaries and long-term suppliers.