WTO Working Papers

Trade costs such as applied tariffs, transportation and insurance costs are amplified as they pass through the multiple production steps associated with modern supply chains. This socalled "cascade effect" arises since trade costs accumulate as intermediate goods are imported and then re-exported further downstream, going through different processing nodes before reaching the final consumer. Moreover, the financial impact of these trade costs is magnified in the "trade in tasks" rationale which governs global value chains (GVCs). Specialised processing firms need to recoup the associated trade cost applying to the full value of the good from the smaller fraction of value-added created at each consecutive productive stage. This large relative weight of transaction expenses on the profitability of individual business operations explains why trade along GVCs is particularly exposed to trade costs. The paper reviews the implications of trade costs on competitiveness at industry, national and global levels. The financial implications of trade costs at firm and sectoral level are based on trade in value-added data for 2011. The multilateral welfare effects of reducing discrete trade costs are identified using a network analysis approach, which goes beyond the traditional bilateral dimension of international trade and identifies where trade facilitation investment would have the highest social returns from a GVC perspective. The authors conclude that while the direct benefits of trade facilitation will be proportionally higher for those countries that are not well integrated into international trade because of their high trade costs, the global benefits of trade facilitation investments will also be high if they are undertaken by key traders that lie at the core of global value chains.

After a decade of negotiations and additional preparatory work, the WTO Trade Facilitation Agreement (TFA) is poised to enter into force. It promises to streamline and substantially prune the red tape that all too often slows and impedes international commerce - thereby significantly reducing both cost and time needed to do business across borders. The paper chronicles the path from the conclusion of the talks at the 2013 Bali Ministerial Conference to the present day as we prepare for the Agreement to take effect. It reviews the state of the ratification process, analyses implementation schedules and outlines work still to be done. The study shows that the emerging application of the TFA, like its negotiation, has once again confounded the sceptics – who first doubted that a TF Agreement would see the light of day and then questioned if it would ever be put into practice. While plenty remains to be done to implement the TFA across the full WTO membership, its entry into force is set to happen – a valedictory moment.

This paper reviews the different types of provisions explicitly addressing small and medium enterprises (SMEs), including micro firms (MSMEs), in regional trade agreements (RTAs). The analysis covers the 270 RTAs currently in force and notified to the WTO as of April 2016. The analysis shows that half of all the notified RTAs, namely 136 agreements, incorporate at least one provision mentioning explicitly SMEs. These SMEs-related provisions are highly heterogeneous and differ in terms of location in the RTA, language, scope and commitments. Many of the SMEs related provisions are only found in a single or couple of RTAs. A limited but increasing number of RTAs incorporate specific provisions in dedicated articles or even chapters on SMEs. Although the number of detailed SMEs-related provisions included in a given RTA has tended to increase in recent years, most SMEs-related provisions remain couched in best endeavour language. The two most common categories of SMEs-related provisions found in RTAs are provisions (1) promoting cooperation on SMEs and (2) specifying that SMEs and/or programs supporting SMEs are not covered by the RTAs' obligations provisions. Other types of SMEs-related provisions, incorporated in a limited number of RTAs, refer, inter alia, to government procurement, trade facilitation, electronic commerce, intellectual property, or transparency.

The objective of this manuscript is to serve as a practical guide for estimations with the structural gravity model. After a brief review of the theoretical foundations, we summarize the main challenges with gravity estimations and we review the solutions to address those challenges. Then, we integrate the latest developments in the empirical gravity literature and we offer six recommendations to obtain reliable partial equilibrium estimates of the effects of bilateral and non-discriminatory trade policies within the same comprehensive, and theoretically-consistent econometric specification. Our recommendations apply equally to analyses with aggregate and disaggregated data. Interpretation, consistent aggregation methods, and data challenges and sources for gravity estimations are discussed as well. Empirical exercises demonstrate the usefulness, validity, and applicability of our methods.

The objective of this manuscript is to serve as a practical guide for evaluation of the general equilibrium (GE) effects of trade policy using the structural gravity model. We try to achieve this objective in four steps. First, we focus on the original Armington-CES gravity model to offer a deep analysis of the structural relationships underlying the general equilibrium gravity system, and how they can be exploited to make trade policy inferences. Second, we present and discuss a series of indexes that can be used to summarize the GE effects of trade policy. Third, we summarize the standard procedures to perform counterfactual analysis with the gravity model, and we outline recent methods to obtain theory-consistent GE effects of trade policy. Finally, we demonstrate how gravity can be integrated with a broader class of general equilibrium models by nesting the Armington-CES model within a dynamic production superstructure with capital accumulation.

This paper assesses the impact of the 2005 multilateral Hong Kong Ministerial decision on duty free quota free (DFQF) market access for products originating in Least developed countries (LDCs) on the latter's export performance. The analysis is conducted over a sample of 41 LDCs, with data spanning the period 1998-2013. The empirical analysis examines both the average effect and the short term/medium term effect. Results indicate that on average, this multilateral decision has exerted a positive effect on LDCs' performance on merchandise exports, with this average positive effect being solely driven by a positive effect on LDCs' export performance on primary products; the average effect on manufacturing exports has been statistically nil. In the short and medium term, this decision has exerted a positive effect on LDCs' merchandise export performance, as well as on the components of the latter, namely both primary product exports and manufacturing exports. However, the positive effect on primary product exports appears to be far higher than that on manufacturing exports. These findings have important policy implications regarding reflections on the way LDCs could utilize their policy flexibilities in the WTO Agreements to diversify their exports away from the primary sector and toward manufacturing and/or services sector.

The unbundling of trade across regions offers unique opportunities for SMEs to integrate into global trade notably through their involvement into supply-chains. With supplychains shifting and expanding into new regions of the world, the challenge for SMEs to accessing financing remains an important one; in many developing and emerging market economies, the capacity of the local financial sector to support new traders is limited. Moreover, after the financial crisis, several global banks have "retrenched", for various reasons. In this context, supply-chain finance arrangements, and other alternative forms of financing such as through factoring, have proven increasingly popular among traders. This paper shows that factoring has a positive effect in allowing SMEs to access international trade, in countries in which it is available. Factoring also appears to be employed by firms involved in global supply chains. We employ for the first time data on factoring from Factor Chain International (FCI), the most extensive dataset on factoring available at the moment, for the period of 2008-2015. Using an instrumentation strategy we identify a strong, stable effect of factoring on SMEs access to capital for some of the main traders in the world.

The average international trade transaction is subject to numerous procedural and documentation requirements, which add to the costs of doing business as an importer or exporter and also use up scarce government resources. While these requirements can be necessary to fulfil policy objectives, questions are often raised about why and how they are implemented. The Trade Facilitation Agreement (TFA), adopted by WTO Members in 2014, seeks to expedite the movement, release and clearance of goods across borders and reduce these trade transaction costs - by an average of 14.3 per cent as estimated by the 2015 World Trade Report. At the same time, many WTO Agreements already contain provisions aimed at facilitating trade procedures and avoiding unnecessary costs. The Agreement on Technical Barriers to Trade (the TBT Agreement) is one of these: its provisions on transparency and conformity assessment procedures, some of which are applied at the border, are of particular relevance in this context. The TFA and TBT Agreements are in fact complementary, with the TFA introducing some new requirements/recommendations, which are likely to apply to certain TBT measures. This paper maps out the linkages between these two Agreements. It does so with a view to informing TBT officials of the requirements and best practices emerging in the trade facilitation area as well as raising awareness amongst trade/customs officials of existing rules and evolving practices in the TBT area. The 2015 World Trade Report refers to “border agency cooperation” as the main TFA implementation challenge identified by developing countries and also points to the importance of cooperation and coordination between ministries as one of the main success factors. Considering that a significant share of import/export procedures and controls arise from the implementation of TBT measures, a better understanding of the linkages between the TFA and the TBT Agreement (as well as other relevant WTO Agreements such as the SPS Agreement) will be crucial for effective implementation. It will also contribute to more streamlined technical assistance activities and raise awareness among TBT officials of the opportunities generated by trade facilitation projects. The procedures and practices of the WTO TBT Committee, especially with regards to transparency and specific trade concerns, could also be of interest to the future TFA Committee, as it embarks on its task of furthering the implementation of the TFA. All these in turn will help reap the expected benefits of the new Trade Facilitation Agreement.

The GATS does not offer a definition of "services", but services need to be identified and classified for the operation of the Agreement, especially for the scheduling of specific commitments on market access and national treatment. There is no obligation on WTO Members to use any particular classification system in undertaking commitments. Nevertheless, an informal document produced for the services negotiation during the Uruguay Round, the Services Sectoral Classification List (W/120), was used and continues to be used as the principal guiding classification system, not only in the WTO, but also in bilateral and plurilateral services trade negotiations outside of the WTO. WTO jurisprudence has also noted the role of W/120 in the determination of sectoral coverage of GATS commitments. However, services classification does not receive enough attention it deserves. This paper attempts to make contribution by providing an overview of services classification and highlighting its relevance to both trade negotiations and WTO dispute settlement. It consists of four sections. Section I reviews how a services classification system was introduced into the multilateral trading system and describes the main features of W120. Section II takes a closer look at some aspects of the classification system, drawing attention to challenges in its application, which arise from inter alia services with multiple end-uses, overlaps between sectors, and the issue of "new services". Section III considers the implications of classification on GATS commitments by examining a number of WTO dispute settlement cases. Section IV concludes. In conclusion, the paper underlines the importance of services classification in assisting governments in clearly and accurately undertaking commitments. It also notes that WTO Members have taken or suggested various pragmatic approaches to addressing challenges in the application of the current services classification system. The proposed approaches again highlight the role of classification in ensuring the clarity, certainty and predictability of specific commitments in services.

This paper investigates whether TBT provisions included in RTAs differ from those under the WTO TBT Agreement, and, if they do, whether they entail broader commitments. Our analysis covers 238 RTAs, of which 171 include at least one provision, and focuses on the provisions on technical regulations, conformity assessment procedures, transparency, dispute settlement, marking and labelling and sector-specific commitments. We find that all RTAs signed since 2010 systematically include TBT provisions and that the most frequent provisions are those referring to the TBT Agreement and transparency. Moreover, even if there are RTAs that include new or broader commitments than the TBT Agreement, our study shows that their number remains very limited. For instance, relatively few RTAs have included provisions to better implement WTO provisions in the area of transparency or provisions requiring the equivalence or harmonization of technical regulations among the parties or even the recognition of conformity assessment results. RTAs with a dispute settlement provision that applies exclusively to TBT issues are also very few. These RTAs give in general exclusive jurisdiction to the WTO DSM over TBT related disputes. Finally, also only a minority of RTAs include provisions on new issues such as marking and labelling or sector-specific provisions, typically for electric and electronic products, pharmaceuticals or vehicles.