Do preferential trade agreements provide reasonable insurance?

Preferential trade agreements have been criticised for not increasing economic welfare relative to the status quo. In this article, we suggest that even if this is the case, they offer a reasonable form of insurance against possible adverse trade or investment policies in the future. In Australia, preferential trade agreements have been controversial with the release of a Productivity Commission report in 2010 and the commonwealth government's response to it in 2011. A particularly controversial aspect of such agreements is whether they should include investor-state dispute resolution mechanisms which are often considered unnecessary in a country subject to the rule of law.