Economic research and trade policy analysis
Trade Policies for a Circular Economy
From its initial focus on minimizing waste generation the circular economy has evolved into a broad-based approach to make resource use more sustainable. A big part of the appeal of a circular economy is the opportunities it creates not only for resource savings and better human health and environmental outcomes but also for trade and economic diversification.
Turning Hills into Mountains?
Over the past months it has become increasingly clear that the services negotiations under the Doha Development Agenda will not produce significant improvements on current commitments unless major new impetus is provided. In an introductory section this paper discusses various impediments from the perspective of participating governments that may explain the lack of negotiating momentum to date. It then provides an overview of existing commitments under the GATS (by sector mode of supply and level of development) and of the initial offers that had been tabled by early 2005. Despite the substantial benefits that may be associated with the liberalization of services trade the GATS has obviously not yet lived up to ambitious expectations. For example on average across all WTO Members only one-third of all services sectors have been included in current schedules of commitments; and many entries have been combined with significant limitations on market access and national treatment or with the complete exclusion of particular types of transactions (modes of supply) from coverage. While the ongoing services negotiations provide an opportunity to complement the rule-making efforts of the Uruguay Round with genuine market opening many governments apparently have found it difficult despite generally more restrictive access regimes and thus potentially higher gains from liberalization than in merchandise trade to undertake or envisage economically significant bindings across a broad range of services. Five years after the inception of the services round current negotiating arrangements based mainly on (bilateral) exchanges of requests and offers may need to be complemented by common points of reference to provide greater focus and guidance.
Measuring GATS Mode 4 Trade Flows
The paper discusses the research work which has taken place over recent years with respect to the measurement of GATS mode 4 – presence of natural persons in the context of the revision of the Manual on Statistics of International Trade in Services. Realistic estimates of mode 4 trade are virtually non-existent. Based on the GATS legal definition the paper introduces the statistical conceptualization of mode 4. While showing that balance of payments labour related flows indicators such as worker's remittances and compensation of employees cannot be used as substitutes the paper discusses relevant balance of payments transactions in individual services sectors for estimating the value of this trade. Given the complexity of many services contracts (one service contract may involve the use of more than one mode to supply services to consumers) it provides simplifying assumptions that help build these measures of mode 4 trade in services. The paper recognizes that the proposed simplified statistical approach to modes of supply does not strictly adhere to GATS provisions and explains that it has been designed as a first guidance to provide relevant information for GATS while ensuring feasibility and consistency with statistical frameworks. Examples are given showing the interest of some economies to estimate the size of mode 4 trade. The paper also presents how existing migration and tourism statistics could be used to assess the physical mode 4 movement (flows) and presence (stocks) in terms of number of persons. It introduces necessary extensions (separate identification of relevant mode 4 categories of persons breakdowns by origin/destination occupations length of stay etc.) of these statistical frameworks in order to conduct a proper assessment of mode 4.
Africa’s Integration in the WTO Multilateral Trading System
The Marrakesh Agreement establishing the WTO recognizes the need for positive efforts designed to ensure that developing countries and especially the least developed among them secure a share in the growth in international trade commensurate with the needs of their economic development.This article discusses how the WTO contributes to facilitating Africa’s integration into the WTO multilateral trading system. It is argued that while African countries are actively engaged in the work of the WTO securing their economic and policy interests some main challenges remain. These include the need to further diversify production linking to the Global Value Chains and developing adequate infra-structures facilitating digital trade as a vehicle for economic growth.
When Bad Trade Policy Costs Human Lives
Many developing countries still levy tariffs on mosquito nets thereby discouraging their use and contributing to the spread of diseases such as malaria and dengue. Focusing on sub-Saharan Africa the paper shows to which extent such tariffs are in place and based on existing elasticity figures calculates the cost of this policy.
Non-Tariff Measures and the WTO
In this paper I sketch out the rough contours of the challenge faced by the WTO in dealing with non-tariff measures (NTMs) as seen from the economic theories of trade agreements. The key questions for the WTO - the answers to which largely dictate the choice between shallow and deep approaches to integration – appear to be two: (1) Is it the terms-of-trade problem or the commitment problem that WTO member governments seek to solve with their WTO membership?; and (2) Is it market clearing or offshoring/bilateral bargaining that is now the most prominent mechanism for the determination of international prices? I suggest that evidence on the first question points to the terms-of-trade theory and hence toward shallow integration but that answering the second question may be the key to identifying the best way forward on NTMs for the WTO.
Services Commitments in Preferential Trade Agreements
Preferential trade agreements (PTAs) on services have proliferated since 2000. This working paper briefly presents the expansion of the dataset initially developed in Marchetti and Roy (2008). The data permits to assess the extent to which market access commitments undertaken by WTO Members in PTAs go beyond GATS commitments and offers made in the context of the Doha Development Agenda. The dataset which covers PTA commitments of 53 WTO Members (counting EU Members States as one) is available at: http://www.wto.org/english/tratop_e/serv_e/dataset_e/dataset_e.htm
Forecasting Trade
This paper develops a set of time series models to provide short-term forecasts (6 to 18 months ahead) of international trade both at the global level and for selected regions. Our results compare favourably to other forecasts notably by the International Monetary Fund as measured by standard evaluation measures such as the root mean square forecast error. In comparison to other models our approach offers several methodological advantages inter alia a focus on import growth as the core variable the avoidance of certain difficulties affecting the performance of structural models the selection of variables and lags on the basis of theoretical considerations and empirical testing as well as a full documentation of the modelling process.
R&D in the Network of International Trade
Recent empirical evidence has shown that trade liberalization promotes innovation and productivity growth in individual firms. This paper argues that different types of trade liberalization – multilateral versus regional – may lead to different R&D and productivity levels of firms. Trade agreements between countries are modelled with a network: nodes represent countries and a link between the nodes indicates the existence of a trade agreement. In this framework the multilateral trade agreement is represented by the complete network while the overlap of regional trade agreements is represented by the hub-and-spoke trade system. Trade liberalization which increases the network of trade agreements reinforces the incentives for firms to invest in R&D through the creation of new markets (scale effect) but it may also dampen these incentives through the emergence of new competitors (competition effect). The joint action of these two effects within the multilateral and the regional trade systems gives rise to the result that for the same number of direct trade partners the R&D effort of a country in the multilateral agreement is lower than the R&D effort of a hub but higher than the R&D effort of a spoke. This suggests that a ”core” country within the regional trade system has higher R&D and productivity level than a country with the same number of trade agreements within the multilateral system whereas the opposite is true for a ”periphery” country. Additionally the paper finds that while multilateral trade liberalization boosts productivity of all countries regional trade liberalization increases productivity of core economies but may decrease productivity of periphery economies if the level of competition in the new trade partner countries of the periphery economy is ”too high”. Furthermore the aggregate level of R&D activities within the multilateral trade agreement exceeds that in the star – the simplest representative of the hub-and-spoke trade system.
Estimating Trade Policy Effects with Structural Gravity
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.
Are Stricter Investment Rules Contagious?
We argue that the trend toward international investment agreements (IIAs) with stricter investment rules is driven by competitive diffusion namely defensive moves of developing countries concerned about foreign direct investment (FDI) diversion in favor of competing host countries. Accounting for spatial dependence in the formation of bilateral investment treaties (BITs) and preferential trade agreements (PTAs) that contain investment provisions we find that the increase in agreements with stricter provisions on investor-state dispute settlement and pre-establishment national treatment is a contagious process. Specifically a developing country is more likely to sign an agreement with weak investment provisions if other developing countries that compete for FDI from the same developed country have previously signed agreements with similarly weak provisions. Conversely contagion in agreements with strong provisions exclusively derives from agreements with strong provisions that other FDI-competing developing countries have previously signed with a specific developed source country of FDI.
Mapping of Safeguard Provisions in Regional Trade Agreements
This study surveys safeguard provisions on trade in goods in 232 regional trade agreements (RTAs) notified to the GATT/WTO up to 31 December 2012. In particular it identifies those RTAs that modify the conditions applicable to the RTA partner (either substantively or procedurally) in the event that a global safeguard is invoked. In the case of bilateral (or intra-RTA safeguards) the study analyses provisions governing injury assessment causation conditions for the invocation of a measure and the types of measures that may be employed. We use the yardstick of GATT Article XIX and the WTO Safeguards Agreement to determine whether the provisions applicable to bilateral safeguard measures are more or less stringent than the corresponding multilateral rules. The study also includes an inventory of infant industry balance of payments and special safeguards applicable to agricultural products found in RTAs. We demonstrate through various examples that safeguard provisions have become more prescriptive in recent years though little homogeneity in their design is found even for a given country. In the case of global safeguards roughly a quarter of RTAs provide for the possible exclusion of the RTA partner subject to certain criteria thus discriminating against non-parties. In the case of bilateral safeguards some RTAs use looser language to define the trigger mechanism to invoke a safeguard and to determine injury standards thus potentially offering greater scope to use such measures. We found wide variety in the types of bilateral safeguard measures that are permitted in RTAs. A number of more recent RTAs tighten the conditions for application of a bilateral safeguard through limiting the duration of the safeguard measure allowing the use of tariff-based measures only and binding the use of the measure to the transition period. Other RTAs specify neither the length of the bilateral safeguard measure nor the conditions for its reapplication thus providing greater scope to impose such measures than in the multilateral context.
The Shifting Contours of Trade in Knowledge
This paper charts the evolution and diversification of trade in knowledge that has taken place in the quarter-century since the WTO TRIPS Agreement came into force. Entirely new markets have come into being potentially redefining the very character of 'trade'.
Plurilateral Trade Agreements
There are essentially two types of plurilateral trade agreements (PAs) among WTO Members n exclusive and an open variant. While the benefits of the former agreements are shared among participants only the latter are implemented on an MFN-basis thus profiting non-signatories as well. The most prominent examples are the Information Technology Agreement (1996) and the Fourth and Fifth Protocols under the GATS (1997) on telecom and financial services respectively. To preclude ‘free riding’ their entry into force was made contingent on the participation of a ‘critical mass’ of countries. The respective benchmarks usually market shares of some 80% or more are quite challenging however. To promote more widespread use of plurilaterals given the plethora of pressing policy concerns whether investment- competition- or labour-related and the persistent stalemate in the Doha Round negotiations the conclusion of exclusive agreements is thus being (re-)considered in ongoing policy discussions. This article takes a sceptical view since any such PA would need to be agreed by consensus among all 160-odd WTO Members. It may prove more rewarding to further explore the potential of open agreements to address policy concerns among interested Members either in the form of co-ordinated improvements of their current schedules or if not covered by existing treaty frameworks as ‘WTO-extra’ understandings.
LDC Export Diversification, Employment Generation and the "Green Economy"
"Pro-poor" tourism is arguably one of the best green options for addressing LDC poverty employment and economic diversification initiatives. Although often neglected as a serious policy option -- and consequently most of its potential still remains untapped -- tourism is the leading export for at least 11 LDCs and the 2nd or 3rd largest export for another 11 or more. It is also a major source of new employment especially for women youth and the rural poor in general. While difficult to measure accurately tourism's pro-poor impacts are directly related to the achieved level of inter- and intra-sectoral linkages. Taking export diversification employment generation and the "green economy" in turn the working paper analyzes feasible LDC alternatives reaching the conclusion (within the limits of data availability) that -- in contrast with the current overemphasis on agriculture and manufacturing -- green tourism is demonstrably one of the areas of greatest current comparative advantage and development potential for the majority of LDCs via its extensive upstream and downstream linkages/multiplier effects employment-generating and poverty alleviation capacities opportunities for export "test marketing" of new products sustainability and largely untapped export opportunities. An economy wide primarily private-sector approach is an essential element for maximizing tourism benefits -- including its multiple linkages with agriculture and manufacturing -- together with a significant coordinating governmental role to minimize negative externalities. Unfortunately there is no automatic guarantee that expanding tourism will significantly increase poverty alleviation or local employment generation: the necessary mechanisms must be explicitly included in tourism planning and implementation.
International Rules for Trade in Natural Resources
This paper investigates the scope for international rules to address market failures in trade in natural resources and the associated international transactions of prospecting and investment in resource exploitation. We argue that several market failures are likely to have substantial costs. However due to the distinctive features of natural resources the market failures are particular to them. The ad hoc approaches which have attempted to address them to date leave scope for a more systematic and comprehensive approach by the WTO but the distinctive features of natural resources imply that this could not simply be an application of the rules appropriate for other forms of trade.
The Value of Bindings
One of the goals of the multilateral trading system is to enhance the stability and predictability of the environment in which traders operate. Binding tariffs at the WTO reduces the scope for their discretionary use. But countries have bound tariffs at ceiling levels often substantially above the level of applied tariffs. Therefore whether the ceiling rate at which countries have committed at the WTO is sufficient to diminish trade policy volatility is an empirical question. Using a recently built database on applied tariffs covering over 100 countries for the period 1996 to 2009 we find evidence that countries do vary tariffs. We find evidence that applied tariffs of tariff lines that are bound are more likely to be decreased and less likely to be increased and that this “taming” effect of the binding decreases with the level of the water (i.e. the gap between bound and applied tariff). This finding is robust to controlling for political economy determinants of tariffs and to factors related to the economic cycle.
Lessons from the First Two Decades of Trade Policy Reviews in the Americas
The Trade Policy Reviews conducted in the Western Hemisphere over 1989-2009 contain a wealth of information that puts in clear evidence the considerable improvements achieved in most American countries during the first two decades of operation of the Trade Policy Review Mechanism. Those Reviews show that trade liberalization came hand-in-hand with internal reforms and was generally of an autonomous nature and an intrinsic component of improved economic management. Trade liberalization slowed down during the second decade under review with tariffs having come down mostly during the earlier years. The use of non-tariff barriers also fell over time although at a slow pace in some of the smallest Members which found it difficult to implement the more complex trade policy instrument applied by larger countries. Export and other government assistance schemes proliferated throughout the continent but were often characterized by a lack of unity in the criteria used to assign and apply them. The review period also witnessed enormous changes in the services sectors where reforms usually proved more complex than in the goods area. The multilateral and other international trade agreements contributed to the stability of trade policies and the general rejection of protectionism although backtracking did occur in a number of cases. Because the commitments made during the Uruguay Round negotiation now fall short of the more liberal trade regimes that came to be over the review period most Members in the Americas could presently raise trade and investment barriers without violating multilateral rules. Thus the pressing need to conclude the Doha Development Agenda in order to lock in the considerable trade policy liberalization achieved during past years and to strengthen the multilateral trading system.
Trade in Services in the Context of COVID-19
A new information note published by the WTO Secretariat looks at how the COVID-19 pandemic has affected trade in services from tourism and transport to retail and health services.
Infrastructure Provision and Africa’s Trade and Development Prospects
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.