Trade plants the flag: Sanctions-busting and the signing of new preferential trade agreements

Abstract

Why does the imposition of trade sanctions sometimes lead to the signing of new preferential trade agreements (PTAs) between target countries and their trade partners? I argue that the occurrence of trade-based sanctions-busting behavior increases the likelihood of signing new PTAs despite the pressure from senders of sanctions. The notion that "trade plants the flag"explains how firms that bust sanctions lobby their home governments for signing PTAs to secure their first-mover advantage in a sanctioned market. By using rare event models and weighting methods, this empirical analysis of data from 1950 to 2006 reveals that firms' rent-seeking behavior is the driving force of seeking PTAs especially during multilateral trade sanctions. Thus, this finding can illuminate sanctions agenda as firm-level transactions may serve as a determinant of state-led institutionalized cooperation after the execution of sanctions.