Economic research and trade policy analysis
The Impact of Mode 4 Liberalization on Bilateral Trade Flows
This paper gives insights into the possible trade creating effects of service trade liberalization via Mode 4. In particular we expect that temporary movements of persons like permanent movements have the potential to reduce transaction costs for merchandise trade between home and host country. Exploiting data on H-1B beneficiaries from different origins in the United States and using a gravity model of trade we find significantly positive effects of temporary movements of persons on bilateral merchandise trade. In addition to this the paper provides insights into the determinants of temporary movements of persons.
Does Globalization Cause a Higher Concentration of International Trade and Investment Flows?
It has sometimes been argued that "globalization" benefits only a small number of countries and that this leads to greater marginalization of excluded countries. This paper argues that globalization is not necessarily biased towards greater concentration in international trade and investment flows. Marginalization is more likely to be explained by domestic policies in relatively closed countries. The paper shows that among relatively open economies the concentration of international trade and investment flows has declined over the last two decades whereas the opposite is true among relatively closed economies. Thus marginalization is not intrinsic to globalization. Key Words: Globalization international trade and investment flows concentration.
The Economic Impact of EPAs in SADC Countries
The Cotonou Agreement introduces new fundamental principles with respect to trade between the European Union and African Caribbean and Pacific countries relative to the Lomé Convention: in particular non-reciprocal preferential market access for ACP economies will only last until 1 January 2008. After that date it will be replaced by a string of Economic Partnership Agreements meant to progressively liberalise trade in a reciprocal way. The progressive removal of barriers to trade is expected to result in the establishment of Free Trade Agreements between the EU and ACP regional groups in accordance with the relevant WTO rules and help further existing regional integration efforts among the ACP. In this paper an applied general equilibrium model (15 regions 9 sectors) is used to simulate the impact of EPAs for countries of the Southern African Development Community. The standard Global Trade Analysis Project (GTAP) model has been extended to include the elimination of textile quotas EU enlargement to 25 members as well as tax revenue sharing and a common external tariff among Southern African Customs Union countries. A number of comparisons between different scenarios are undertaken in particular: (i) the EPA scenario is compared to the multilateral liberalization scenario; (ii) SADC liberalization with the EU only is compared to a scenario with simultaneous regional integration among African economies and to the case of the EU also signing an FTA with Mercosur; and (iii) a complete reduction of import barriers is contrasted with partial liberalization (i.e. only 50 per cent tariff reductions in agriculture) and with full trade liberalization that includes the elimination of subsidies. The issue of tariff revenue loss is also addressed and the required tax replacement is calculated. Selected experiments are re-run under an unemployment closure. Simulation results show that EPAs with the EU are welfare-enhancing for SADC overall leading also to substantive increases in real GDP. For most countries further gains may arise from intra-SADC liberalization. The possibility of the EU entering an FTA with other countries such as Mercosur reduces estimated gains but they still remain largely positive. Similarly estimated gains need to be revised downwards if agriculture liberalization is not as far reaching as a reduction of import barriers for manufactures. At the sectoral level the largest expansions in SADC economies take place in the animal agriculture and processed food sectors while manufacturing becomes comparatively less attractive following EU-SADC liberalization. Interestingly multilateral liberalization would instead foster some of the manufacturing sectors (textile and clothing and light manufacturing). Results also show the need for the SACU tariff pooling formula to be adjusted to reflect new import patterns as tariffs are removed.
A Commitment Theory of Subsidy Agreements
This paper examines the rationale for the rules on domestic subsidies in international trade agreements through a framework that emphasizes commitment. We build a model where the policy-maker has a tariff and a production subsidy at its disposal taxation can be distortionary and the import-competing sector lobbies the government for favourable policies. The model shows that under political pressures the government will turn to subsidies when its ability to provide protection is curtailed by a trade agreement that binds tariffs only. We refer to this as the policy substitution problem. When factors of production are mobile in the long-run but investments are irreversible in the short-run we show that the government cannot credibly commit vis-à-vis the domestic lobby unless the trade agreement also regulates production subsidies thus addressing the policy substitution problem. Finally we employ the theory to analyze the Subsidies and Countervailing Measures (SCM) Agreement within the GATT/WTO system.
WTO Decision-Making for the Future
Decision making in the WTO has become ever more difficult as the number of members increases and the range of issues tackled broadens. This paper looks at reasons why aspects of decision-making might be changed and discusses a number of potential pitfalls that change would have to avoid such as a dilution of commitments and fragmentation of the multilateral trading system. It then takes a detailed look at the notion of ‘critical mass’ decision-making. It argues for this approach under certain conditions as it would: i) allow for the emergence of a more progressive and responsive WTO agenda; ii) blunt the diversion of trade cooperation initiatives to RTAs; iii) allow more efficient differentiation in the levels of rights and obligations among a community of highly diverse economies; and iv) promote greater efficiency in multilaterally-based negotiations on trade rules and perhaps sectoral market access agreements.
An Empirical Assessment of the Economic Effects of WTO Accession and its Commitments
Besides facilitating access to the world market WTO accession negotiations entail a process of domestic reforms that are expected to improve the supply side of acceding economies. However measuring the actual impact of accession remains an empirical debate.
The TRIPS Agreement and COVID-19
The WTO Secretariat has published a new information note about how the global intellectual property (IP) system relates to the COVID-19 pandemic and potential contributions it could make to efforts to address it. The note provides an overview of IP-related measures taken by WTO members and other stakeholders since the start of the crisis.
A ‘New Trade’ Theory of GATT/WTO Negotiations
I develop a novel theory of GATT/WTO negotiations. This theory provides new answers to two prominent questions in the trade policy literature: first what is the purpose of trade negotiations? And second what is the role played by the fundamental GATT/WTO principles of reciprocity and nondiscrimination? Relative to the standard terms-of-trade theory of GATT/WTO negotiations my theory makes two main contributions: first it builds on a ‘new trade’ model rather than the neoclassical trade model and therefore sheds new light on GATT/WTO negotiations between similar countries. Second it relies on a production relocation externality rather than the terms-of-trade externality and therefore demonstrates that the terms-of-trade externality is not the only trade policy externality which can be internalized in GATT/WTO negotiations.
Why do Trade Finance Gaps Persist
Trade finance shortfalls now appear regularly. Does this matter for trade expansion and economic development in developing countries? Global trade finance has resumed following the 2009 global financial crisis. However the pattern of recovery has been uneven across countries and categories of firms. The recovery has been robust for the main routes of trade and for large trading companies. By contrast access to trade finance remains costly and scarce in countries which have the strongest potential for trade expansion. We introduce new data from a global survey of firms to argue that real shortfalls are exacerbated by perception gaps in a way that has enabled market failures to persist. This has troubling implications most directly through its effect on the ability for small firms to benefit from the reallocation of production and investment within global supply chains.
Use of the WTO Trade Dispute Settlement Mechanism by the Latin American Countries
The WTO's Dispute Settlement Mechanism (DSM) has been hailed as a fundamental aspect of the Multilateral Trading System for developing countries. At the same time developing countries face many challenges to ensure their effective participation in the mechanism. This paper presents statistical evidence of how Latin-American countries have been very active in their use of the DSM especially when their use of the mechanism is compared to their participation in world trade. This paper also analyses why to a large extent Latin American countries have overcome the challenges of participating in the DSM; and have done so by coming up with innovative and creative solutions without deviating from the guidelines established by WTO rules.
Developing & 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.
Developing Countries in the WTO Services Negotiations
The aim of this paper is to analyse developing countries’ participation so far in the current round of services negotiations under the Doha Development Agenda. The paper analyses developing countries’ negotiating positions as evidenced by their multilateral negotiating proposals; their initial offers; and to the extent allowed by the incomplete and sketchy information available their participation in bilateral market access negotiations. A number of basic themes are raised: the essential role of services for economic development; the high costs imposed by trade protection; the benefits of liberalization; the need to make use of the WTO forum to enhance credibility and sustain domestic regulatory reform programmes; the challenges of regulatory reform and the importance of appropriate sequencing; and the benefits arising from seeking further market access overseas in those areas where developing countries have a comparative advantage.
Trade and Fisheries
In this report we first give a brief overview of trade in seafood and seafood production. We then review the basic bioeconomic theory of the fishery and pinpoint why fisheries are different from most other industries. We next review the theoretical literature on trade and renewable resources that shows how unconventional outcomes from trade liberalization can emerge. Given this background we discuss the most important policy issues in relation to seafood and trade including sections on managing the global commons and domestic trends in management. In the final section we discuss specific issues that are germane to the WTO and its rules.
Trade Costs in the Time of Global Pandemic
The WTO Secretariat has published a new information note warning of possible increases to trade costs due to COVID-19 disruptions. The note examines the pandemic’s impact on key components of trade costs particularly those relating to travel and transport trade policy uncertainty and identifies areas where higher costs may persist even after the pandemic is contained.
ICT, Access to Services and Wage Inequality
This paper discusses how information and communication technology (ICT) affects the quality and reach of consumer services. These services need to be provided locally but consist of several components some of which can be digitised and transmitted over long distances. A general equilibrium model is developed and numerical simulations in a stylised two-factor two-region centre-periphery setting are presented. Trade in intermediate services improves the quality of consumer services enormously in the periphery but may reduce the quality at the centre. Trade in intermediate services also has a dramatic impact on skilled workers’ wages in the periphery both relative to unskilled workers in their own region and relative to skilled workers at the centre and leads to a more equal distribution of income both between the centre and the periphery and within the periphery.
Infrastructure and Trade
This paper explores the role that quality of infrastructure has on a country's trade performance estimating a gravity model that incorporates bilateral tariffs and a number of indicators for the quality of infrastructure. The paper looks at the impact of the quality of infrastructure (road airport port and telecommunication and the time required for customs clearance) on total bilateral trade and on trade in the automotive clothing and textile sectors. In order to obtain unbiased estimators multilateral resistances for tariffs and remoteness are introduced in the gravity equation. Moreover the robustness of the results is tested by estimating a fixed-effect model where bilateral indexes of the quality of infrastructure are included. The results can be summarised in four main findings: (i) bilateral tariffs generally neglected in gravity regression of bilateral flows have a significant negative impact on trade; (ii) quality of infrastructure is an important determinant of trade performance; (iii) port efficiency appears to have the largest impact on trade among all indicators of infrastructure; (iv) timeliness and access to telecommunication are relatively more important for export competitiveness in the clothing and automotive sector respectively.
Intellectual Property Provisions in Regional Trade Agreements
This is a revision and update of "Intellectual Property Provisions in Regional Trade Agreements" by Valdés and Runyowa (2012). This paper adjusts the methodology applied to assess the intellectual property (IP) provisions contained in regional trade agreements (RTAs) and the aggregation of such provisions into groups; it also updates the RTAs surveyed from 194 in November 2010 to 245 in February 2014. New information contained in this revision relates to three IP-related investment and non-violation provisions in RTAs. The methodological revisions and new information result in changes to the assessment of the IP content of certain RTAs while the update reveals a growing and increasingly complex network of RTAs with IP content. This revision also provides new insights into possible improvements to the methodological toolkit for analysing IP in RTAs. The paper assembles detailed information about the IP provisions contained in active RTAs notified to the WTO. The goal was to expand beyond the more commonly studied RTAs to review the full array of agreements notified to the WTO and thus to enable consideration of the implications of this diverse range of norm-setting activity for the multilateral system. Mapping of the IP content in RTAs involving parties from all regions and levels of development is necessary to better understand crosscutting trends in RTAs and how all the parts of the international IP framework influence each other. The methodology followed involved surveying each RTA in the sample to determine whether it made reference to any of 32 different IP-related provisions. Two of the three IP-related provisions new to this revision and update are investment-related IP provisions while the other concerns dispute settlement for non-violation claims. The relevant provisions are discussed in detail and summary statistics used to identify patterns over time and by continent level of economic development and selected traders. The number of IP provisions in each RTA is then used to classify agreements according to their level of IP content. The first significant identified trend is the acceleration in the conclusion of RTAs with IP provisions after the creation of the WTO and the entry into force of the WTO TRIPS Agreement. A significant proportion of those RTAs contain some type of IP provision but the number and type of those provisions vary widely across agreements. A majority of the RTAs surveyed include general IP provisions while a smaller proportion contains explicit provisions on specific fields of IP law such as geographical indications patents trademarks and copyright. The inclusion of even more detailed provisions elaborating on specific areas of IP law is less common. As a result the actual IP content of RTAs differs greatly across the sample with slightly less than half of these agreements found to havesubstantive IP standards that can be classified as moderate or high. The RTAs containing a high level of IP provisions are characterized by a hub-and-spoke architecture in which the wording and structure of IP provisions converged around the RTAs of specific countries or blocs. The largest systems are grouped around the EFTA the European Union and the United States. The hub-and-spoke architecture seems to have encouraged the convergence of domestic IP regimes among the respective RTA signatories. The mechanics of this potentially crucial process and its economic implications require further investigation.
Regional Integration in Africa
This paper examines the history of regional integration in Africa what has motivated it the different initiatives that African governments have pursued the nature of the integration process and the current challenges. Regional integration is seen as a rational response to the difficulties faced by a continent with many small national markets and landlocked countries. As a result African governments have concluded a very large number of regional integration arrangements several of which have significant membership overlap. While characterized by ambitious targets they have a dismally poor implementation record. Part of the problem may lie in the paradigm of linear market integration marked by stepwise integration of goods labour and capital markets and eventually monetary and fiscal integration. This tends to focus on border measures such as the import tariff. However supply-side constraints may be more important. A deeper integration agenda that includes services investment competition policy and other behind-the-border issues can address the national-level supply-side constraints far more effectively than an agenda which focuses almost exclusively on border measures.
Does Trade Openness Contribute to Driving Financing Flows for Development?
Trade has been recognized in the 2030 development Agenda as well as in the Addis Ababa Agenda for Action as an important means for the implementation of the Sustainable Development Goals (SDGs).
Trade Policies Supporting Women’s Economic Empowerment
This paper looks at the various trade policies WTO Members have put into place to foster women’s economic empowerment. The analysis below is based on the information provided by WTO Members as part of their Trade Policy Review (TPRs) process from 2014 to 2018. Reports from the WTO Secretariat governments as well as the question and answer sessions were examined for the purpose of this paper.