Economic research and trade policy analysis
The Relation between International Trade and Freshwater Scarcity
It is becoming increasingly important to put freshwater issues in a global context. Local water depletion and pollution are often closely tied to the structure of the global economy. With increasing trade between nations and continents water is more frequently used to produce exported goods. International trade in commodities implies long-distance transfers of water in virtual form where virtual water is understood as the volume of water that has been used to produce a commodity and that is thus virtually embedded in it. Knowledge about the virtual-water flows entering and leaving a country can cast a completely new light on the actual water scarcity of a country. For example Jordan imports about 5 to 7 billion m3 of virtual water per year which is in sharp contrast with the 1 billion m3 of water withdrawn annually from domestic water sources. This means that people in Jordan apparently survive owing to the import of water-intensive commodities from elsewhere for example the USA.
Revisiting Trade and Development Nexus
The rapid rise in global fragmentation — foreign investment global supply chains and ‘production sharing — is fundamentally reshaping the multilateral trading system. This paper uses a simple economic modeling framework to understand how the global fragmentation phenomenon may reshape the WTO and particularly its developing country members that are most affected by the rise in global production sharing and foreign direct investment. The paper argues that the surge in global production sharing supply chain agreements and investment has not only recast the role of existing GATT/WTO rules but that these same forces also create a strong rationale for new multilateral disciplines pertaining to investment incentives and other ‘behind-the-border’ policies.
International Trade and Real Transmission Channels of Financial Shocks in Globalized Production Networks
The article analyses the role of international supply chains as transmission channels of a financial shock. Because individual firms are interdependent and rely on each other either as supplier of intermediate goods or client for their own production an exogenous financial shock affecting a single firm such as the termination of a line of credit reverberates through the productive chain. The transmission of the initial financial shock through real channels is tracked by modelling input-output interactions. The paper indicates that when banks operate at the limit of their institutional capacity defined by the capital adequacy ratio and if assets are priced to market then a resonance effect amplifies the back and forth transmission between real and monetary circuits. The paper illustrates the proposed methodology by computing a supply-driven indicator (IRSIC) and indirect demand-driven impacts on five interconnected economies of different characteristics: China Japan Malaysia Thailand and the United States.
The Revised WTO Agreement on Government Procurement (GPA)
The WTO's plurilateral Agreement on Government Procurement ("the GPA" or "the Agreement") is an important ongoing success story for the Organization. In March 2012 the GPA Parties completed a comprehensive revision of the Agreement encompassing both its text and coverage (market access commitments). The revised GPA the negotiating processes that led to its adoption and coming into force and the continuing gradual broadening of its membership are of therefore interest for the evolution of the international trading system. The GPA's successful renegotiation the continuing growth of its membership and its vitality as an instrument of public policy were not achieved through happenstance. The paper discusses a number of specific design features of the GPA that clearly facilitated the successful conclusion of the renegotiation and that as such may in the future be relevant to other areas of global trade liberalization. In addition to the Agreement's plurilateral nature of particular interest are the approach taken with respect to application of the most-favored-nation (MFN) principle in the Agreement; the GPA's continuing strong emphasis on principles of reciprocity in market access concessions; and its approach to special and differential treatment for developing countries in all of which it differs from approaches that are widely used in other WTO Agreements. Apart from the above the GPA revision is important for the merging of trade and good governance concerns that it exemplifies. As discussed in the paper the themes of governance and the sound management of public resources that are treated in the revised Agreement were not afterthoughts to the renegotiation; rather they permeated the revised text and received focused attention from the Parties in their own right. As well the GPA has direct implications for investment policy and for domestic economic reforms and is an important tool of e-commerce. And the revision has made possible very significant synergies between the GPA and other international instruments and activities in reducing barriers to participation and strengthening governance in public procurement markets. For all these reasons the revised Agreement is likely to have a wider impact than meets the eye and well merits the support and attention that it has received from the participating WTO Member governments.
National Environmental Policies and Multilateral Trade Rules
This paper provides an overview of institutional economic and legal aspects of the relationship between national environmental policies and the multilateral trading system. In particular it analyses some of the difficulties the WTO Dispute Settlement System faces when having to evaluate disputes on national environmental policies that have an impact on trade. From an economist's point of view it would be desirable that optimal environmental policies i.e. policies that correct existing market failures be ruled consistent with multilateral trade law. This paper argues that WTO law in theory provides appropriate tools to ensure rulings that are consistent with economic thinking. Yet the paper also argues that economists have a rather imperfect knowledge of the precise welfare effects of different types of environmental policies. In practice therefore it is questionable whether economists are able to give adequate guidance to legal experts when it comes to the evaluation of national environmental policies. This is one of the reasons why there continues to be some degree of uncertainty as to the possible interpretations of certain WTO rules in the context of environmental disputes.
Non-Reciprocal Preference Erosion Arising from MFN Liberalitzation in Agriculture
This paper estimates the risk of preference erosion for non-reciprocal preference recipients in the agricultural sector as a consequence of MFN tariff cuts. It is based on a simulation of a single tariff-cutting scenario. The measure of preference erosion risk is the difference in preference margins enjoyed by individual suppliers to the QUAD (Canada EU Japan United States) markets before and after a MFN tariff reduction multiplied by the associated trade flow. The paper does not attempt to determine how losses in preference margins translate into trade outcomes but it does highlight which products and which non-reciprocal preference beneficiaries are the most vulnerable to erosion effects in the major developed country markets. Overall the paper finds that the risk of preference erosion is small but some countries are strongly affected in particular product lines (notably sugar and bananas).
Political & Quasi-Adjudicative Dispute Settlement Models in European Union Free Trade Agreements
In this paper interpretation and application dispute settlement provisions of European Union (EU) Free Trade Agreements (FTAs) signed between 1963 and 2006 are analysed. This will be through the two models of Dispute Settlement in International Law: the political and adjudicative. Political elements of dispute settlement mechanisms in Public international Law and General Agreement of Tariffs and Trade (GATT) served to establish those of the EU FTAs. Adjudicative and quasi-adjudicative elements of dispute settlement mechanisms of Public International Law and World Trade Organization (WTO) Law were used as parameters to set up those of the EU FTAs. These parameters also helped to define a new and unique hybrid model. The features of this model were found in Agreements with trade issues other than FTAs. It is possible however for future FTAs to incorporate them. The hybrid model is based on an adjudicative framework and includes both political and adjudicative elements. In conclusion it was found that even though WTO Members incorporated adjudicative elements in the Dispute Settlement Understanding (DSU) the EU did not incorporate them bilaterally for a further five years. Furthermore since the creation of the DSU in 1995 the EU has established more FTAs based on a political model than on a quasi-adjudicative. Consequently the quasi-adjudicative dispute settlement model has not represented a clear trend in EU FTAs.
Competition policy, trade and the global economy: Existing WTO elements, commitments in regional trade agreements, current challenges and issues for reflection
Competition policy today is an essential element of the legal and institutional framework for the global economy. Whereas decades ago anti-competitive practices tended to be viewed mainly as a domestic phenomenon most facets of competition law enforcement now have an important international dimension. Examples include: the investigation and prosecution of price fixing and market sharing arrangements that often spill across national borders and in important instances encircle the globe; multiple recent prominent cases of abuses of a dominant position in high-tech network industries; important current cases involving transnational energy markets; and major corporate mergers that often need to be simultaneously reviewed by multiple jurisdictions.
The Role of WTO Committees through the Lens of Specific Trade Concerns Raised in the TBT Committee
In this paper we provide some evidence of the common claim that STCs improve transparency and monitoring as well as help mitigate trade conflicts.
Testing the Trade Credit and Trade Link
Trade finance has received special attention during the financial crisis as one of the potential culprits for the great trade collapse. Several researchers have used micro level data to establish the link between trade finance and trade especially so during the financial crisis and have found diverting results. This paper analyses the effect of trade credit on trade on a macro level through a whole cycle. We employ Berne Union data on export credit insurance the most extensive dataset on trade credits available at the moment for the period of 2005--2011-. Using an instrumentation strategy we can identify a significantly positive effect of insured trade credit as a proxy for trade credits on trade. The effect of insured trade credit on trade is very strong and remains stable over the cycle not varying between crisis and non-crisis periods.
Reform in Basic Telecommunications and the WTO Negotiations
This paper examines liberalization of the basic telecommunications sector in a number of Asian countries and the role of the General Agreement on Trade in Services (GATS) in this process. It begins by explaining the working of the GATS as a mechanism for multilateral liberalization efforts. It then presents a description of the reforms taking place in the telecom regimes of selected Asian countries and of the commitments these countries made in the recent GATS negotiations. The paper explores the reasons why governments have taken advantage of the GATS negotiations to make multilateral market-opening commitments even though they were not pursuing export interests. The paper also considers the limits to what was achieved by way of liberalization commitments in the negotiations. Allowing greater foreign equity participation without liberalizing the conditions of entry may raise national welfare concerns. Furthermore certain governments could have taken greater advantage of the opportunity under GATS to precommit to future liberalization.
The WTO Global Trade Costs Index and Its Determinants
This study provides a decomposition of the WTO Global Trade Costs Index into five policy-relevant components: transport and travel costs; information and transaction costs; ICT connectedness; trade policy and regulatory differences; and governance quality. The WTO Global Trade Costs Index is based on a new methodology by Egger et al. (2021) that delivers directional trade cost estimates and sector-specific elasticities which are crucial for inferring trade costs from trade flows data. The resulting measure of trade costs includes all factors that burden foreign sales more than domestic ones. In this study we run a sectoral regression analysis to determine what drives trade costs variation across partners and use the results to decompose the variation in trade costs in each sector.
Recent Trade Dynamics in Asia
This paper looks at the extent to which the shift in the lower value added production to countries in the following development "tier" is actually becoming a reality.
Supply Chain Finance and SMEs
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 Impact of Transparency on Foreign Direct Investment
Non-transparency is a term given in this paper to a set of government policies that increase the risk and uncertainty faced by economic actors foreign investors. This increase in risk and uncertainty stems from the presence of bribery and corruption unstable economic policies weak and poorly enforced property rights and inefficient government institutions. Our empirical analysis shows that the degree of non-transparency is an important factor in a country's attractiveness to foreign investors. High levels of non-transparency can greatly retard the amount of foreign investment that a country might otherwise expect. The simulation exercise presented in the statistical part of this paper reveals that on average a country could expect 40 percent increase in FDI from a one point increase in their transparency ranking. Pari passu non-transparent policies translate into lower levels of FDI and hence lower levels of welfare and efficiency in the host country's economy. A nation that takes steps to increase the degree of transparency in its policies and institutions could expect significant increases in the level of foreign investment into their country. This increased investment translates into more resources which in turn increases social welfare and economic efficiency.
Trade Finance, Gaps and the COVID-19 Pandemic
Developments in trade finance in 2020 were largely driven by the impact of the COVID-19 pandemic. Twelve years after the great financial crisis of 2008-09 the issue of trade finance re-emerged as a matter of urgency. While the current pandemic-related crisis did not have a financial cause one of its results has been that many countries are experiencing difficulties in accessing trade credit. This is occurring notably in countries – particularly developing countries – in which structural trade finance gaps were high even before the pandemic
International health worker mobility and trade in services
Despite its substantial and increasing importance to health systems and inclusive economic growth the relationship between international trade in services and health worker mobility has been largely unexplored. However international health worker mobility and trade in services have both been increasing rapidly and at a growing pace in recent years.
On the Effectsof GATT/WTO Membership on Trade
We capitalize on the latest developments in the empirical structural gravity literature to revisit the question of whether and how much does GATT/WTO membership affect international trade. We are the first to capture the non-discriminatory nature of GATT/WTO commitments by measuring the effects of GATT/WTO membership on international trade relative to domestic sales.
Exposure to External Country Specific Shocks and Income Volatility
Using a dataset of 138 countries over a period from 1966 to 2004 this paper analyses the relevance of country specific shocks for income volatility in open economies. We show that exposure to country specific shocks has a positive and significant impact on GDP volatility. In particular we find that the degree to which the cycles of different trading partners are correlated is more important in explaining exporters’ GDP volatility than the volatility of demand in individual export market. We also show that geographical diversification is a significant determinant of countries' exposure to country specific shocks. Keywords: income volatility geographical export diversification external shocks.
Developing and Delivering COVID-19 Vaccines Around the World
The WTO Secretariat has published a new information note on trade-related issues for COVID-19 vaccine production manufacturing and deployment. The note entitled “Developing and delivering COVID-19 vaccines around the world” explores how trade policy can play its part in ensuring the rapid roll-out of vaccines against COVID-19.