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

Firms in production networks often prefer liberalization through free trade agreements (FTAs) to multilateral liberalization, due to its potential discriminatory effects against firms outside the FTA (outside the scope of this study), but also in relation to competing firms within the FTA. The study theorizes about certain conditions—specific configurations of FTAs and inter-firm heterogeneity in the organization of production—that allow FTAs to asymmetrically (or even selectively) favor some firms within the FTA, accommodate firm heterogeneity in trade preferences, and encourage firms to lobby individually in ways that multilateral liberalization cannot. These arguments were explored in the automotive industry in the context of the FTAs signed by Thailand with other Southeast Asian countries, Japan, India, and Australia using interviews and administrative records. Empirical evidence supports the relevance of the herein identified conditions to explain the heterogeneity of firms in their trade preferences, political action, and use of FTAs. Firms pushed for FTA configurations that liberalized their trade flows as selectively as possible relative to competitors and used FTAs primarily for hierarchical and captive cross-border input trade with subsidiaries and long-term suppliers