WTO Working Papers

In 2003, the WTO General Council decided to provide an additional legal pathway for WTO Members with insufficient or no manufacturing capacities in the pharmaceutical sector to access medicines. Two years later, in 2005, WTO Members unanimously agreed to give this mechanism, often referred to as the "Paragraph 6 System", a permanent legal status when they adopted the Protocol Amending the TRIPS Agreement. The implementation and use of the additional pro-public health flexibilities provided by the System is optional, not mandatory. To take advantage of them, as of July 2015, 51 WTO Members have adopted specific implementing measures with a variable degree of detail and complexity which incorporate the Paragraph 6 System in their respective legal frameworks and provide the basis for them to act either as exporter or as importers, or as both. This represents almost a third of the WTO Membership, and the predominant bulk of existing pharmaceutical exporters. Given that, unlike other flexibilities in the TRIPS Agreement, the Paragraph 6 System was devised as a new mechanism without previous domestic experience to draw upon, there seems to be an exceptional need for an in-depth discussion of how it has been implemented at country level to which this paper attempts to respond. There is, indeed, often limited knowledge in the policy and procurement communities about the wide range of specific measures that have been introduced in many major exporters of medicines and the importance of this information both from a practical point of view, to facilitate exports of needed medicines, and from a policy point of view, to understand the implementation of this novel tool for access to medicines. To contribute to a better understanding of how the System has been implemented in practice, this paper surveys domestic measures that WTO Members have put in place. By doing so, it can inform the broader dialogue about access to medicines and provide practical information for procurement programmes. It can also put a valuable source of information and inspiration at the disposal of those Members who are yet in the process of considering whether and how best to implement the Paragraph 6 System in their domestic legal framework. While the survey illustrates that a robust framework supportive of the export of generic medicines to meet public health needs has been put in place by a significant number of WTO Members, there is an obvious need to move a step forward and engage in a substantive review of the System, including if and how better, more frequent use could be made of it. To conclude, the paper therefore offers some elements for reflection regarding the way forward in order to support the functioning of the Paragraph 6 System.

This paper studies the effects of trade policy uncertainty on the extensive and the intensive margins of trade for a sample of 149 exporters at the HS6 digit level. We measure trade policy uncertainty as the gap between binding tariff commitments under trade agreements (multilateral and regional agreements) and applied tariffs- what is also known as tariffs’ water. Our results show that trade policy uncertainty is an important barrier to export. On average the elimination of water increases the probability of exporting by 12 percent. A one percent decrease of water also increases export volumes by one percent. We also find that the negative impact of trade policy uncertainty is higher for countries with low quality of institutions and in the presence of global value chains. Finally, our findings show that on average trade policy uncertainty is equivalent to a level of tariffs between 1.7 and 8.7 percentage points.

This paper analyses the role of services in international trade through the lens of global value chains (GVCs). Services account for more than 70% of world GDP but only for around 20% of world trade in balance of payments terms. In value added terms, accounting for services embodied in exported goods, services account for 40% of world trade. Services industries increasingly produce in networked or "fragmented" arrangements. The paper lays out conceptual and measurement issues related to services networks and provides evidence based on trade in value added statistics and on a case study on the film industry. In contrast to goods value chains, services networks appear less fragmented internationally based on trade in value added statistics and survey evidence. However, to better capture the international services fragmentation, advances in statistics by enterprise characteristics and by mode of supply, i.e. taking into account the movement of labour and capital, are required.

The WTO’s plurilateral Information Technology Agreement (ITA) reduced tariffs to zero on many IT products. This paper presents a comprehensive study of its trade impacts by incorporating recent insights from both the global value chain (GVC) and time in trade literatures. Inserting tariffs directly into the gravity equation breaks the ITAs impact down into four layers. Import demand elasticities are found to be non-linear: Tariff reduction (layer 1) has relatively small impacts, while complete tariff elimination (layer 2) has high impacts, especially for intermediate goods. Beyond that, ITA accession has positive non-tariff effects on both imports (layer 3) and exports (layer 4). These commitment effects suggest that higher trade policy certainty affects investment and sourcing decisions in favour of signatories: Their ITA exports performed better relative to other ICT and machinery exports, unlike non-members. But “passive signatories” – which joined mainly as a by-product of a larger policy objective – reaped the most benefits. Featuring a smaller ITA sector upon accession, their final good exports increased also in absolute terms due to downstream GVC integration. However, such impacts are strongly heterogeneous with respect to countries’ geographical remoteness, education levels, business environment and institutions. China stands out with especially strong post-accession export increases, also extending to intermediate goods.

Albeit nominal tariffs have been decreasing in the past decades, the rise of global manufacturing along global value chains lead to their accumulation along the international supply chain. The calculation of effective protection rates provides important insights on the impact of nominal protection on the international competitiveness of industries in a trade in tasks perspective. Building on the results of the OECD-WTO Trade in Value-Added TiVAdatabase, the paper analyses the evolution of effective protection in about 50 developed and developing countries from 1995 to 2008. The paper reviews also the role of preferential agreements on effective protection as well as the impact of tariffs on the production costs of services. A final chapter is dedicated to exploring the underlying patterns that may exist beyond the EPR profiles.

Transitioning from the post-2008 financial meltdown to a sustained period of global growth and prosperity involves a major challenge: how to ensure the effective management of international economic interdependence. Trade, growth, good governance and sustainable development constitute essential ingredients to any solution, as is a fairer distribution of the gains of trade. Two issues stand out in this conversation. The first concerns the unfinished business of the global fight against the scourge of poverty, which impacts one region more than most: Africa. At the same time, a key pre-requisite for economic performance - affordable and efficient public infrastructure and services – remains lacking in this region – notably, in Sub-Saharan Africa. To address this, the region itself has initiated a major, long-term, continent-wide infrastructure development programme which is intended to fix this problem sustainably - namely, the Programme for Infrastructure Development in Africa (PIDA). Its success foreshadows an economic transformation that will potentially usher in an emergent Africa in the 21st century. Secondly, in one area of economic activity – trade in government procurement markets - the revised WTO Agreement on Government Procurement (GPA) is emerging as a multi-dimensional tool of trade, governance and development. The thesis of this paper is that GPA participation by African countries - a prospect which, to date, they have declined to take up - holds strong potential to reinforce the positive effects of PIDA and to contribute to the region's growth and development more generally. Developing this thesis, the paper examines the possible application of the GPA to support Africa's infrastructure programme, drawing on its three dimensions of instrument of governance, market access instrument, and 'policy space' instrument in support of the development, financial and trade needs of developing countries. Based on the analysis, the paper concludes that the potential benefits outweigh the potential costs of participation in the GPA by African countries, and, accordingly, that the GPA merits consideration by the region in this regard. A successful implementation of the infrastructure programme also portends a significant expansion in the size of the African government procurement market. Were African countries to accede to the Agreement in this context, it would constitute not only a big rise in membership numbers, but also a significant expansion in the value of market access under the Agreement. The broad outlines of a potential win-win scenario for both African countries and GPA Parties thus begin to emerge. The paper, nonetheless, acknowledges that delivering these benefits would involve significant practical and political challenges. It concludes that if the challenges can be overcome and the mutual benefits delivered, the revised GPA would have been demonstrated as an effective tool for balancing flexibility and reciprocity in the government procurement sector, consistent with sustainable development principles, with the capability to deliver win-win benefits for a broad range of stakeholders, in the post-2015 era.

We examine in this paper the impact of the tightening of IPRs, notably patents rights, and the adoption of utility model laws on export diversification. To perform our analysis, we used panel data covering 89 developing and developed countries (of which 55 developing countries) over the period 1975 – 2003, and Lewbel (-2012-)'s instrumental variable technique. Our results lead us to conclude that for developing countries, legal protection for minor and adaptive inventions could be a springboard for further strengthening of IPRs protection in spurring export diversification, which is essential for the structural change needed for their economic development.

Bangladesh's international image is not as a popular tourism destination, and many people might be surprised to learn it has three World Heritage sites, including the Sundarbans tiger reserves. Moreover, it is part of important travel circuits for cultural and religious tourism, and has demonstrated potential for sports tourism. The objective of this working paper is to critically test the assertion that pro-poor "green" tourism is one of the best development options for the majority of least developed countries (LDCs) -- a challenging task in Bangladesh in the face of the country's success as an exporter of readymade garments -- by comparing tourism to the available alternatives with regard to the crucial government priorities of export diversification, employment generation and the "green economy". It is well-known that Bangladesh is under strong pressure to diversify its exports, to generate new employment (especially in rural areas), and to respond to critical environmental issues. The government has identified over 30 "thrust sectors" (including tourism) to help address these challenges, but otherwise tourism is rarely mentioned as a major trade and development option for Bangladesh. Within the limitations of data availability, this working paper reaches the conclusion that greater efforts to develop "green" tourism would be highly beneficial for facilitating rural development, environmental and cultural protection, gender equality, and export diversification in services. The most obvious current impediments are inadequate infrastructure, lack of investment and (typically election year) political conflict, but behind these factors appear to be a serious lack of stakeholder coordination, insufficient regulatory and administrative transparency and coherence, as well as some government reluctance to relinquish greater commercial autonomy in tourism to the private sector. This paper offers extensive analysis and some suggestions to help address the impediments, including the recommendation to create a Bangladesh Tourism Stakeholders Forum.

Most international commerce is carried out by multinational firms, which use their foreign affiliates for the majority of their foreign sales. In this paper, I examine the determinants of multinational firms’ location and production decisions and the welfare implications of multinational production. The few existing quantitative general equilibrium models that incorporate multinational firms achieve tractability by assuming away export platforms – i.e. they do not allow foreign affiliates of multinationals to export – or by ignoring fixed costs associated with foreign investment. I develop a quantifiable multi-country general equilibrium model, which tractably handles multinational firms that engage in export platform sales and that face fixed costs of foreign investment. I first estimate the model using German firm-level data to uncover the size and nature of costs of multinational enterprise and show that fixed costs of foreign investment are large. Second, I calibrate the model to data on trade and multinational production for twelve European and North American countries. Counterfactual results reveal that multinationals play an important role in transmitting technological improvements to foreign countries as they can jump the barriers to international trade; I find that a twenty percent increase in the productivity of US firms leads to welfare gains in foreign countries an order of magnitude larger than in a world in which multinational production is disallowed. I demonstrate the usefulness of the model for current policy analysis by studying the pending Canada-EU trade and investment agreement; I find that a twenty percent drop in the barriers to foreign production between the signatories would divert about seven percent of the production of EU multinationals from the US to Canada.

How do information frictions distort international trade? This paper exploits a unique historical experiment to estimate the magnitude of these distortions: the establishment of the transatlantic telegraph connection in 1866. I use a newly collected data set based on historical newspaper records that provides daily data on information flows across the Atlantic together with detailed, daily information on prices and trade flows of cotton. Information frictions result in large and volatile deviations from the Law of One Price. What is more, the elimination of information frictions has real effects: Exports respond to information about foreign demand shocks. Average trade flows increase after the telegraph and become more volatile, providing a more efficient response to demand shocks. I build a model of international trade that can explain the empirical evidence. In the model, exporters use the latest news about a foreign market to forecast expected selling prices when their exports arrive at the destination Their forecast error is smaller and less volatile the more recent the available information. I estimate the welfare gains from information transmission through the telegraph to be roughly equivalent to those from abolishing a 6% ad valorem tariff.