Economic research and trade policy analysis

This WTO working paper studies availability and affordability of new and innovative pharmaceuticals in a post-TRIPS era. The WTO’s TRIPS Agreement (TRIPS) makes it obligatory for WTO members– except least-developed country members (LDCs) - to provide pharmaceutical product patents with a 20-year protection term. Developing country members, other than LDCs, were meant to be compliant with this provision of TRIPS by 2005.

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.

Since 1990 the number of preferential trade agreements (PTAs) has increased very rapidly. This paper aims to contribute to this literature by presenting a new database on PTAs called Design of Trade Agreements (DESTA). We identified a total of 690 negotiated trade agreements between 1945 and 2009 of which we have coded 404 agreements for which treaty texts and appendices were available. We aim to have a database for about 550 agreements by 2012. We have coded agreements for a total of 10 broad sectors of cooperation, encompassing market access, services, investments, intellectual property rights, competition, public procurement, standards, trade remedies, non-trade issues, and dispute settlement. For each of these sectors, we have coded a significant number of items, meaning that we have about 100 data points for each agreement. The resulting DESTA database is – to the best of our knowledge – by far the most complete in terms of agreements and sectors covered. This dataset fills a crucial gap in the field by providing a fine-grain measurement of the design of PTAs. Among others, we think that DESTA will be of relevance for the literatures on the signing of PTAs; the legalization of international relations; the rational design of international institutions; the diffusion of policies; the political and economic effects of trade agreements; power relations between states; and forum shopping in international politics. This working paper describes the DESTA data set and provides selected descriptive statistics. The overview puts emphasis on variation in design over time and across regions.

Our analysis covers 230 PTAs of which 111 contain substantive provisions on investment. Over the past 60 years or so, States have created an extensive network of Bilateral Investment Treaties (BITs) that govern and protect international investment. The number of BITs concluded annually continues to increase, although this rate has tapered off over the past decade.

Aid for Trade supports developing and least-developed countries in building their trade capacity and in increasing their exports by turning market access opportunities into market presence. It does so by addressing four key areas: trade policy & regulations; economic infrastructure; building productive capacity; and trade-related adjustment.

This paper compares the solution methods and baseline calibration of three different quantitative trade models (QTMs): computable general equilibrium (CGE) models, structural gravity (SG) models and models employing exact hat algebra (EHA). The different solution methods generate identical results on counterfactual experiments if baseline trade shares or baseline trade costs are identical.

This paper examines empirically whether Aid for Trade (AfT) programmes and Foreign Direct Investment (FDI) inflows affect export upgrading and, if so, whether their effects are complementary or substitutable. Export upgrading entails export diversification (including overall export diversification, as well as diversification at the intensive and at the extensive margins) and export quality improvement. The empirical analysis shows that total AfT flows have a strong positive impact on export upgrading, and that LDCs as compared to Non-LDCs, are the most important beneficiaries of this positive impact. While the impact of FDI inflows on export diversification in host economies is mixed, these flows do exert a strong positive impact on export quality upgrading. Furthermore, the impact of FDI on export diversification is higher in LDCs than in Non-LDCs. Incidentally, AfT and FDI inflows appear substitutes (in an economic theory sense) in achieving export diversification and complementary in their effect on the improvement of export quality in recipient countries, including LDCs. Results obtained on the impact of components of total AfT are inconclusive, as they suggest both complementarity and substitutability with respect to FDI inflows in affecting export upgrading in recipient countries. Overall, empirical results suggest that AfT and FDI inflows are effective in influencing export upgrading in recipient countries. However, the results also highlight the importance of the interplay between these two kinds of capital flows in affecting export development strategies and FDI policies of recipient countries, notably LDCs. We can infer from this study that AfT flows appear to play a particularly important role in ensuring that FDI inflows do not lead to further export concentration, by putting in place the necessary conditions for export diversification.

This paper explores how regulatory responses to emerging IP issues in digital trade may develop at the international level and in particular how existing mechanisms might influence the chances of developing internationally agreed rules in this regard. The primacy of state sovereignty in intellectual property up to the late 19th century gave way to the important WIPO treaties, which still retained some independence of member states and based international regulatory responses directly on national experience. While more regulatory sovereignty was ceded in TRIPS, the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty, the adoption of non-binding instruments (such as the WIPO Joint Recommendations in the area of trademarks) show the limits of decision making by consensus.

The WTO Secretariat has published a new information note looking at how the COVID-19 pandemic has affected e-commerce, including the implications for cross-border trade. It notes the increased use of e-commerce as consumers adapt to lockdowns and social distancing measures and draws attention to several challenges, such as the need to bridge the digital divide within and across countries.

Without transparency, trade agreements are just words on paper. Transparency as disclosure allows economic actors and trading partners to see how rules are implanted; transparency in decision-making ensures fairness and peer review. In the first section of this paper, I discuss the logic of transparency in general and the motivation for its use in the trading system. Considerable information on WTO transparency mechanisms is available in the Minutes and annual reports of the various WTO bodies, and in the Director-General’s annual overview of the trading system, but comparative analysis is not easy. In the second section, therefore, I develop a framework in which different transparency mechanisms can be compared to each other using the metaphor of three generations in the evolution of transparency in the trading system as a means of explaining how transparency works in the WTO. For sunshine to work, at least two things must happen. Information must be made available, and Members have to use it. Probing the extent to which Members comply with their notification obligations, in the third section, and their efforts to improve the notification process, allow an assessment of their commitment to being transparent. In the fourth section I consider how WTO committees are used to ensure that Members are accountable for their commitments, including to notify. Since the committees differ, I use the metaphor of the great pyramid of the legal order to compare committees to each other. Assessment of whether these mechanisms work underpins observations in the conclusion on whether more sunshine is needed, and efforts underway to improve existing mechanisms.

Most specific trade concerns (STCs), which are raised before the WTO Committee on Technical Barriers to Trade (TBT Committee), disappear from the TBT Committee’s meeting agendas without escalating into formal disputes. At the same time, a relatively small number of TBT-related disputes have been subject to the WTO dispute settlement procedures. By examining the practice of raising STCs and the relationship between STCs and disputes, the paper emphasises the role of STCs as a trade tension resolution mechanism.

In the last ten years, there has been a sea change in trade and related policies in emerging markets. This results from autonomous reforms undertaken in conjunction with macroeconomic stabilization programmes. Many non-tariff measures have been eliminated and tariffs, now the principal trade instrument, have been rationalized and reduced. Considerable increases in security of market access result from increased membership of the GATT/WTO system, which itself underwent important changes as a result of the Uruguay Round, further developed in the first Ministerial Meeting of the WTO in Singapore in December 1996. The systemic changes and the expansion of WTO membership to the transition and other economies mark a dramatic change in international economic relations.

We collect a novel dataset that covers about 130 countries and the six four-digit live animal categories in the Harmonized System (HS) over a sixteen-year period, to study the link between illicit trade in live animals and threat to animal health from infectious diseases.

Using a gravity-type model to explain bilateral passenger traffic, this paper estimates the impact of liberalizing air transport services on air passenger flows for a sample of 184 countries. We find evidence of a positive and significant relationship between the volumes of traffic and the degree of liberalization of the aviation market. An increase in the degree of liberalization from the 25th percentile to the 75th percentile increases traffic volumes between countries linked by a direct air service by approximately 30 per cent. In particular, the removal of restrictions on the determination of prices and capacity, cabotage rights and the possibility for airlines other than the flag carrier of the foreign country to operate a service are found to be the most traffic-enhancing provisions of air service agreements. The results are robust to the use of different measures of the degree of liberalization as well as the use of different estimation techniques.

Compared to its counterpart in merchandise trade, the General Agreement on Tariffs and Trade (GATT) of 1947, the General Agreement on Trade in Services (GATS) contains a variety of conceptual innovations. In addition to cross-border supply, the Agreement covers three additional types of transactions, i.e. the supply of services via consumer movements abroad as well as the presence of foreign firms and foreign service professionals in the respective markets. At the same time, the GATS accommodates a range of measures, including the use of quantitative restrictions and discriminatory taxes or subsidies, which are clearly constrained under the GATT. The Agreement offers particularly broad scope for various types of export-related interventions, regardless of ensuing market distortions. The social and economic relevance of such measures is immediately evident. This paper seeks to provide an overview and assessment in the light of relevant GATS provisions and WTO dispute rulings.

Trade finance, particularly in the form of short-term, self-liquidating letters of credit and the like, has received relatively favourable treatment regarding capital adequacy and liquidity under Basel III, the new international prudential framework. However, concerns have been expressed over the potential” unintended consequences” of applying the newly created leverage ratio to these instruments, notably for developing countries’ trade. This paper offers a relatively simple model approach showing the conditions under which the initially proposed 100% leverage tax on non-leveraged activities such as letters of credit would reduce their natural attractiveness relative to higher-risk, less collateralized assets, which may stand in the balance sheet of banks. Under these conditions, the model shows that leverage ratio may nullify in part the effect of the low capital ratio that is commensurate to the low risk of such instruments. The decision by the Basel committee on 12 January 2014 to reduce the leverage ratio seems to be justified by the analytical framework developed in this paper.

Even if traders adapt to technical regulations and standards in an export market, they still must prove compliance by undergoing conformity assessment procedures (CAPs), such as testing, inspection, or certification. Duplication, delays or discrimination in CAPs can significantly increase trade costs, and this risk is reflected in the growing importance of CAPs in WTO discussions and bilateral and regional free trade agreements. This paper conducts an empirical study of the trade issues that WTO Members encounter with CAPs as described in specific trade concerns (STCs) raised in the WTO Committee on Technical Barriers to Trade (TBT) during 2010-2014. We observe that CAPs raise proportionally more concern among WTO Members than technical regulations do, and that testing and certification are the procedures that most frequently give rise to trade problems. Within the framework of the TBT Agreement, we find that questions around transparency and whether CAPs create unnecessary barriers to trade are the two most prominent issues highlighted by Members.

COVID-19, caused by SARS-Cov-2, was declared to be a pandemic by the World Health Organization on 11 March 2020. Since then, the issue of the relationship between patent protection and the development of and access to medical treatments and technologies – a longstanding and enduringly important public policy issue – has become central to the debate on the linkages between IP, innovation, access, and public health between stakeholders with divergent interests.

The WTO Secretariat has published an update of the information note on trade in medical goods in the context of tackling COVID-19 which was first issued on 3 April. The update looks at developments that took place in the first half of 2020.

In most of the current literature, the spread of regionalism in international trade relations is iscussed in terms of a rapidly rising number of preferential trade agreements (PTAs). Far less attention is given to the even more rapid proliferation of bilateral investment treaties (BITs) and their overlap with obligations assumed by WTO Members under the General Agreement on Trade in Services (GATS). About 60 per cent of world foreign investment stocks are in services and, thus, covered by mode 3 (commercial presence) of the GATS. A closer look reveals that BITs generally apply across a far wider range of sectors, in particular in the case of LDCs and developing countries, than those scheduled under the GATS. Furthermore, a number of obligations enshrined in BITs go beyond their potential counterparts under the GATS. At the same time, since most WTO Members have not listed relevant exemptions from the Most-Favoured-Nation (MFN) clause of the Agreement, their BIT obligations are to be applied on an MFN basis. While this extension may not cause problems in many cases, given generally liberal investment regimes and the focus of most treaties on protecting rather than liberalizing access, inconsistencies remain between the two frameworks. Based on an assessment of relevant provisions, this article discusses options on how WTO Members could proceed.

This paper illustrates how the work of the WTO's standing committees is fuelling regulatory cooperation between WTO members, and inspiring RTA negotiators.

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.

This paper considers the asymmetric effect of Trade Facilitation Agreement (TFA) policies on heterogeneous exporters, based on matching a detailed panel of French firm exports to a new database of Trade Facilitation Indicators (TFIs) released recently by the Organisation for Economic Cooperation and Development (OECD). We analyze the effect of these TFIs on three trade-related outcomes: (i) exported value (firm intensive margin), (ii) number of products exported (product extensive margin) and (iii) average export value per product exported (product intensive margin). We find strong evidence of a heterogeneous effect of trade facilitation across firm size. While better information availability, advance ruling and appeal procedures mainly benefit small firms, the simplification of documents and automation tend to favor large firms’ trade. This is coherent with the idea that while some elements of the TFA simply reduce the fixed cost of exporting (favoring small firms in particular), other chapters in the TFA reduce the scope for corruption at borders, making large firms less reluctant to serve corrupt countries.

This paper provides an economic analysis of the trade conflict between the US and China, providing an overview of the tariff increases, a discussion of the background of the trade conflict, and an analysis of the economic effects of the trade conflict, based both on empirics (ex post analysis) and on simulations (ex ante analysis).

LDCs' trade patterns changed in the past decade, thanks to the rebalancing of global demand towards large emerging countries and the resulting cycle of high international commodity prices. This process led to a wider geographical diversification of LDCs' exports but contributed also to a greater reliance on those highly priced commodities. Notwithstanding some progress in market and product diversification — including services — LDCs remain particularly vulnerable to external shocks. With the exception of 2006-2008, the LDCs as a group have systematically recorded a trade deficit. The 2008-2009 global crisis and the bumpy recovery which followed illustrate the volatility of the recent trends. In such a perspective, renewed efforts towards extensive product diversification are called for. Fostering diversification has been supported for many years by preferential market access to developed countries; more recently, emerging countries have also been granting such preferences to LDCs products. Preferential market access remains relevant, but is not sufficient to improve the supply-side capabilities. The new business model related to global value chains (GVC) offers new opportunities to LDCs for export diversification. But GVC participation cannot materialize without a proper trade environment. Some of the main obstacles for joining GVCs are the high transaction costs in importing the necessary inputs and exporting the processed goods. Active trade facilitation programmes, such as those identified during the Fourth Global Review of Aid for Trade in July 2013 offer new options to LDCs for joining GVCs. For those LDCs that have already been able to join these global production network, up-grading towards higher "value-added" activities requires more encompassing horizontal policies.

This information note seeks to facilitate access to information on possible trade-related bottlenecks and trade-facilitating measures on critical products to combat COVID-19, including inputs used in vaccine manufacturing, vaccine distribution and approval, therapeutics and pharmaceuticals, diagnostics and medical devices. It is not meant to be an exhaustive list of all specific trade measures, nor does it make any judgement on the effect or significance of the reported bottlenecks, nor on the desirability of implementing any of the suggestions on trade-facilitating measures.

This paper uses Chinese firm level data to detect the international propagation of adverse shocks triggered by the US hurricane season in 2005. We provide evidence that Chinese processing manufacturers with tight trade linkages to the United States reduced their intermediate imports from the United States between July and October 2005.

This study surveys preferential rules of origin applied by 192 regional trade agreements (RTAs) covering trade in goods notified to the GATT/WTO up to 1 November 2010. It takes into account the preferential rules of origin that were notified to the WTO; whenever known and available, modifications to the original rules of origin have been updated. This study contains two basic features: a description of some key elements of preferential rules of origin in RTAs, followed by an attempt to provide a reality-check of how these rules affect actual trade. That is done by an ex-post examination of data on the use of RTAs' preferences and, in their absence, of their margins of preference (MOPs). While the raison d'être of preferential rules of origin is the avoidance of trade deflection, the practice in RTAs has diluted this objective and it would seem that preferential rules of origin are increasingly becoming an economic, political and trade instrument. In its descriptive part, the study identifies what seems to be a tendency to design stricter rules of origin, while detecting concomitantly the inclusion in modern preferential rules of origin of flexibilities that provide, through the rules of origin themselves, a preference beyond the lower tariff rate resulting from the preferential treatment and mechanisms that allow the integration of third-parties into preferential rules of origin regimes. The reality-check part of the study points to the fact that much beyond the coverage of RTAs, it is their effective implementation that poses a challenge to economic operators. Though data on the use of preferences is either not disclosed or inexistent, they are nevertheless available for some economies. On the basis of existing data of preference utilization, the analysis of the effects of rules of origin on preferential trade flows appears to give rise to a dual reality - namely a relatively high use of preferences in certain instances coexisting with preferences failing to attain their potential in other cases. As regards RTAs for which utilization rate is not available, the paper analysis preferential rules of origin from a MOPS perspective, assuming that MOPs of at least 5 percentage points would offset compliance costs and thus provide a stimulus to comply with rules of origin in order to benefit from preferences. The analysis, made for 68 out of 192 RTAs, do not allow any conclusion regarding that generally presented hypothesis. Finally, the paper briefly outlines some suggestions for further action, including the launching in the WTO of exploratory work on preferential rules of origin within an "open regionalism" scenario.

Rising current account and merchandise trade imbalances marked the years before the global financial and economic crisis. These imbalances either contributed to or precipitated the crisis and to the extent that they create systemic risks, it is desirable that they be reduced. There are many factors related to macroeconomic, structural, exchange rate and financial policies that contributed to the imbalances. The inability to manage these issues at the international level reflects the “coherence gap” in global governance. This paper examines the contribution that the WTO can make in its three areas of activities — negotiations, rule-making and dispute settlement — to deal with trade imbalances and with the main factors leading to them, including exchange rate misalignments. First, market opening efforts in services, including in the area of financial services, can reduce policy-related distortions and market imperfections in surplus countries that lead to the build-up of unsustainable imbalances. Second, in the context of a broad international effort to coordinate macroeconomic, exchange rate and structural policies to deal with the roots of imbalances (the first-best solution), there is a general efficiency argument that could be made for the use of WTO-triggered trade actions to enforce cooperative behaviour towards rebalancing. Absent this first-best response, trade rules alone would not provide an efficient instrument to compensate for the weaknesses in international co-operation in macroeconomic, exchange rate and structural policies.

A new information note published by the WTO Secretariat highlights how trade in goods and services has been affected by temporary border closures and travel restrictions linked to the COVID-19 pandemic.

This paper examines the role of competition law and policy as tools for poverty reduction and development. The authors put forward five related principles, building upon the important work on related issues that has been done by the OECD, the International Competition Network (ICN), UNCTAD and civil society organizations such as CUTS in recent years, in addition to the earlier work done on these topics in the WTO Working Group on the Interaction between Trade and Competition Policy when that body was active from 1997 through 2003. Together, these principles comprise the "holistic approach" to competition law and policy which is referenced in the title of the paper: First, the focus of policy makers in using competition policy as tool for poverty reduction should be on approaches that are relatively easy to implement but have a trackrecord of being effective and economically sound. Second, for competition policy reforms and legislation to be successful, public acceptance and support is critical and must be an essential focus of related initiatives. Third, to serve as an effective tool of poverty reduction, competition policy needs to address the needs of the citizens of poorer societies in their capacities as producers (and, therefore, as users of extensive input goods and services, including public infrastructure), in addition to their capacities as final consumers/households. Fourth, it is posited that "competition policy" is more than just "what competition agencies do" and includes the full spectrum of measures that governments employ to enhance competition and improve the performance of markets. Fifth, in order to address the challenges posed by the changing landscape of competition policy worldwide, new forms of international co-operation may need to be considered. The paper then develops the application of these principles with respect to five specific areas in which competition policy can contribute to poverty reduction, namely: (i) the reform of public and business infrastructure sectors, particularly in the context of developing and transition economies; (ii) the complementary roles of competition law enforcement and market liberalization in public procurement markets; (iii) various related dimensions of competition policy as they relate to public health objectives; (iv) the addressing of possible monopsonistic practices in international supply chains that may affect the ability of developing country producers to reap gains from participation in international markets; and (v) measures to address the enduring problem of international cartels which, despite an impressive record of prosecutions by developed jurisdiction competition agencies over the past decade, continue to impose substantial costs on developing economies. The paper concludes with some observations regarding the future of international cooperation in the competition policy sphere.

This paper assembles detailed information on the market access provisions in trade in goods contained in 192 active regional trade agreements (RTAs) notified to the WTO as of November 2010. Although market access provisions in trade in goods in RTAs have been addressed in a number of studies, much of this work has been limited to subsets of RTAs, particularly plurilateral RTAs involving three or more parties. The goal of the current study is to expand beyond the more commonly studied RTAs and to include all RTAs notified to the WTO for which data are available. This task has been facilitated by the recent Transparency Mechanism for RTAs (TM), adopted in 2006, that provides the basis for the systematic provision of detailed tariff and trade data by WTO Members engaged in RTAs. This information has been supplemented by other public sources of data, where available. A number of trends are evident. While a majority of RTAs result in a reasonably high degree of liberalization overall (with developing countries often liberalizing as much or more than developed countries), liberalization is not uniform across products or RTA parties. In some RTAs the degree of iberalization appears to be a negotiated outcome, depending on the RTA partner. Agricultural goods continue to be subject to lower levels of liberalization, frequent product exclusions and systematic protection in some RTAs, regardless of the RTA partner's comparative advantage. Nonetheless, a lower level of ambition in some RTAs is tempered by a commitment to negotiate further concessions or expand upon the RTA's scope at some future point: more than half the RTAs analysed contain such a commitment. Much has been written about the potential for the multilateralization of commitments undertaken in RTAs. While there may be scope for positive externalities in terms of regulatory convergence particularly with regard to services liberalization undertaken in RTAs, there is less evidence in this study to suggest that increased market access in merchandise goods leads to a more favourable trading environment for third parties. Continuing constructive engagement by WTO Members in the Transparency Mechanism through the provision of data, timely notifications, and submission of implementation reports will increase the availability of tariff and trade liberalization data, thus facilitating further examination of the topics highlighted in the study as worthy of future research.

Advances in information and communications technologies (ICTs) and new business models have widened opportunities for trade in digitized ideas, shaping global value chains and production networks in cultural or creative goods and services. However, much of this trade has eluded conventional categorization and new business models. In particular multinational firms have blurred the way international transactions can be recorded and how this can be transformed into relevant statistics for policy makers, research and for businesses themselves. Recent international statistical guidelines have suggested a number of improvements to better respond to policy information needs, including in the area of trade, innovation or culture. However, a number of questions remain unanswered. The objective of the paper is therefore to trace the conceptual and empirical statistical picture and assess the quality of existing statistics and the extent to which important trade in digitized ideas is inadequately measured. It discusses conceptual issues, and constraints encountered in gaining a full picture. A number of possible data collection and compilation solutions are suggested to enable a better understanding of this trade.

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.

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.

As an internationally standardized product nomenclature, the Harmonized System (HS) is used by WTO Members in their schedules of concessions and in the definitions of product coverage for a number of WTO agreements. The Harmonized System is normally amended by the World Customs Organization every four to six years. These amendments pose considerable challenges for the WTO and its Members. On the one hand, Members need to periodically update their historical schedules of concessions into the latest nomenclature. On the other hand, these amendments may have implications for the definition and thus also the implementation of some WTO agreements where the product coverage is defined in terms of the HS. In either case, the product codes and/or descriptions in the old HS version need to be transposed precisely into those in the new version of HS nomenclature in order to retain the historical concessions or the product coverage unchanged. Given the complexity of HS amendments, this process could be very technical and sometimes tricky. This paper starts by providing an overview of the HS amendments and proposing a categorization of those HS changes in the context of transposition. It then looks back at the history of the introduction of the HS and its subsequent amendments into the WTO schedules and assesses the difficulties and problems which have been faced by WTO Members. On the basis of such analysis, it introduces the successful procedures and methodologies used by WTO Members and the WTO Secretariat to deal with the recent HS2002 transposition. The paper also discusses the implications of the HS amendments to three WTO agreements and the possible approaches to transpose their product lists into a new HS nomenclature.

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.

Economic theory has made considerable progress in explaining why sovereign countries cooperate in trade. Central to most theories of trade cooperation are issues of self-enforcement: The threat of reprisal by an aggrieved party maintains the initial balance of concessions and prevents opportunism. However, economic scholarship has been less coherent in explaining why countries choose to settle and enforce their trade disputes with the help of an impartial third party, a “trade court”. Typically, economists focusing on the purpose of trade agreements have assumed away the very reasons why institutions are needed, since under standard assumptions, neither defection from the rules nor disputes are expected to occur. This paper is a step towards the formulation of a coherent economic theory of dispute settlement. It challenges traditional models of enforcement (primarily concerned with acts of punishment) for being insufficient in explaining the existence of dispute settlement institutions. We perform a comprehensive analysis of the economics of dispute settlement institutions and demonstrate to what extent the literatures of trade cooperation and dispute institutions are (and should be) interlinked. On the basis of these theories, we show that dispute settlement institutions in trade agreements may assume a variety of roles, including that of an information repository and disseminator, an honest broker, an arbitrator and calculator of damages, an active information gatherer or an adjudicator.

This paper is concerned with three problems in the interpretation of the national treatment obligation in the General Agreement on Trade in Services (GATS). First, the precise domain of Article XVII on national treatment has not been clearly delineated, particularly in relation to Article XVI dealing with market access. Secondly, there is a difference between the text of Article XVII and the structure of the schedules of commitments, which makes it difficult to interpret the scope of the national treatment obligation even for identical services supplied through different modes. The final, and most complex, problem arises in establishing the definition of "like" services and "like" service suppliers. Uncertainty about the precise meaning of the national treatment obligation may undermine the key GATS objective of creating a secure, predictable trading environment. Moreover, the extent of liberalization implied by the commitments under GATS depends on the precise choice of interpretation.

The WTO Secretariat has published two information notes on issues relating to the manufacturing of COVID-19 vaccines.

Improving trade data on products needed to combat the COVID-19 pandemic — including vaccines and their components — is key to ensuring that the right policies are in place to facilitate their distribution, according to a new information note issued by the WTO Secretariat on 1 July.

Le concept d'assurance est fondé sur la mutualisation de risques futurs aléatoires moyennant le paiement en amont d'une contribution financière par le client (la prime d'assurance). Pour être effective, l'assurance suppose une confiance élevée de la part des clients dans la capacité des fournisseurs d'assurance (les compagnies d'assurance) à payer les dommages lorsqu'ils se matérialisent. Sinon, les clients ne payeraient pas leurs primes aux compagnies d'assurance.

The paper discusses the efforts deployed by various players, mainly multilateral financial institutions, regional development banks, export credit agencies, to mobilize greater flows of trade finance for developing countries, with a view to help them integrate in world trade. As an institution geared towards the balanced expansion of world trade, the WTO is in the business of making trade possible. Its various functions include reducing trade barriers, negotiating and implementing global trade rules, and settling disputes on the basis of the rule of law. The WTO is also interested in strengthening the "supply-side" of developing countries so that they can respond to new market opportunities. To this end, it supports various initiatives aimed at improving the "trade infrastructures" of developing countries, ranging from the ability to meet international product, safety and sanitary standards, to run efficient customs, or to participate effectively to the multilateral trade negotiations by training public servants. The WTO carries out various initiatives with other partners (public and private sector institutions), in the context of its own technical assistance program, or in the context of multi-agency projects such as the Integrated Framework or the Aid-for-Trade Initiative. Since more than 90% of trade transactions involve some form of credit, insurance or guarantee, one can reasonably say that trade finance is the lifeline of trade. Producers and traders in developing or least-developed countries need to have access to affordable flows of trade financing and insurance to be able to import and export, and hence integrate in world trade. From that perspective, an efficient financial system is one indispensable infrastructure to allow trade to happen. In line with the above initiatives, the WTO has been following actively, and at times, directly supporting, initiatives to boost the availability of trade finance in developing and least-developed countries wherever it was needed. Since the WTO is not a financial institution, it has been supporting in the past few years partners engaged in this effort such as international financial institutions, export credit agencies, large banks and regional development banks. Initially, the WTO has been asked by its members at several points in recent years to examine the issue of availability of trade financing – as a key infrastructure needed by developing and leastdeveloped countries to integrate in world trade. Paragraph 36 of the Ministerial Declaration of Doha requested WTO Members to examine, and if necessary come up with recommendations, on measures that the WTO could take, within its remit, to minimize the consequences of financial instabilities on their trade opportunities. In the context of the newly created Working Group on Trade, Debt and Finance (WGTDF), the interruptions of the flows of trade finance in emerging markets during the Asian and Latin American financial crises were quickly identified as concerns by Members, as well as the chronic difficulties of low income Members to secure more affordable flows of trade financing in the long-run. These concerns were channelled to the WTO Ministerial Meetings in Cancun (2003) and Hong-Kong (2005).2 During this period of examination, the Heads of the IMF, World Bank and the WTO agreed at the General Council Meeting on Coherence of 2002 to form an expert group including all interested parties, multilateral and regional public institutions, export credit agencies, private banks to examine what went wrong in this segment of financial markets, and how to create an enabling environment in local markets to provide adequate flows of trade finance on a on-going basis. In chairing one of these meetings, the Director-General of the WTO defined the role of the WTO in this area: encouraging liberalization of this type of financial services under the financial services agreement, being a regulator of export credit and guarantee subsidies under the ASCM, and serving as a forum to discuss WTO-compatible ways of providing support to developing countries. Conclusions by the Working Group were presented at the WGTDF, and later at the General Council. WTO Secretariat work on this topic up to 2003, in particular its contribution to the WGTDF and to the expert group, was summarized in WTO Discussion Paper 2.4 While the liquidity in financial markets improved from 2002 until the recent turmoil created by the crisis of the sub-prime mortgage markets, trade finance remained an issue for concern for WTO Members, in particular the poorest, which do not have access to international financial markets or for emerging markets which remain prone to changes in market sentiment, and hence credit rating. Despite the rapid development of "trade finance facilitation" schemes developed by regional development banks and the IFC, with immediate success in low income countries, the issue of availability of trade finance came back among other "supply-side" constraints identified by the Aidfor- Trade Task Force, after the WTO Ministerial Meeting in Hong-Kong. While the mandate of the WTO under the Aid-for-Trade is essentially one of evaluation and monitoring, it may be in cases one of advocacy. Based on the work being carried out since 2002, and after consultation with partners (regional development banks, multilateral institutions, export credit institutions,...), input by the WTO Secretariat to boost the availability of trade finance for developing countries under the Aid-for-Trade umbrella was welcomed by Members. Lack of trade financing and guarantee infrastructures were identified as one of the barriers to integration of low income countries in world trade by each of the three regional Aid-for-Trade Reviews. It was acknowledged that the current Aid-for-Trade Initiative could provide the extra leverage to convince WTO partners to deliver more plentiful of trade credit and guarantees to WTO members that need it the most. This paper provides background on the difficulties of some countries and traders to access affordable trade credit and finance, on the growing divide between these low income countries and economically advanced countries in handling modern trade finance instruments, and on the joint reflection undertaken by the WTO, most recently under the Aid-for-Trade programme, and previously under the umbrella of the WGTDF and the Coherence Mandate, to help strengthen developing countries' capacities in this area.

Discussions about international capital movements raise extremely important and controversial questions. Why should countries open up their capital accounts, especially considering that unrestricted international capital movement is a relatively new phenomenon? For example, many OECD countries have not eliminated their foreign exchange restrictions only until the 1980's. If the answer is unequivocally affirmative, does it matter how fast should countries do so? Should they wait until "all essential pieces" of the policy package are in place before they eliminate all restrictions? How are international capital movements related to domestic financial sectors? Is there a difference between opening to competition an industry such as car manufacturing as compared to the banking sector? Should the opening of the banking sector be governed by different rules? Rules about foreign exchange restrictions are already in place in the IMF Articles. Until recently, the IMF Articles only called for the elimination of foreign exchange restrictions on the current account. The ongoing discussion and the controversy about globalization that calls for the capital account liberalization introduces, therefore, a relatively new element into the whole discussion. These questions have also implications for the World Trade Organization. It is well known, that the Uruguay Round Agreements have already provided a coverage for a number of aspects that are directly related to foreign investment. Rules established elsewhere such as in the context of changes to the IMF Articles will obviously have an important bearing for the implementation of rules agreed in the Uruguay Round. This raises a variety of other questions in the mind of some observers. Who should decide about the rules on capital account liberalization? What rules? IMF? What is the role of the WTO? How does one link the two? All of the questions raised above are clearly extremely important and most of them are discussed in the following paper by John Williamson. Mr. Williamson's presentation is based on his lecture and discussion which was delivered on 17 June 1999 at the WTO. The actual text that follows is a transcript of that lecture.

The system of global agricultural and food trade is undergoing rapid processes of change, with important implications for economic development. In this paper we document and discuss these changes; including the rapid growth and structural change in agri-food trade, the increased consolidation in food supply chains, the proliferation of public and private food standards, high and volatile food prices, and increased vertical coordination in the chains. We investigate what the implications are of these changes for developing countries, for their participation in international agricultural trade as well as for economic development, income mobility and poverty reduction in rural areas.

The General Agreement on Trade in Services (known as the GATS) is an important new element in the international framework that affects the regulation of every WTO Member's financial sector. However, except for a limited number of country-specific case studies, no attempt has been made to compare WTO commitments to open the domestic banking sector to foreign banks with actual regulatory practice in a systematic and comprehensive manner on a cross-country basis. Nor has much attention been devoted to systematically and comprehensively assess the degree to which WTO Members discriminate against foreign bank. This paper draws upon a new and comprehensive dataset consisting of the commitments countries made at the WTO and the regulations actually imposed on foreign banks by those countries. The dataset covers 123 WTO Members for whom there was also information available on their current regulatory regime for banking (based on the responses to a World Bank survey as discussed in Barth, Caprio, and Levine (2006)). On the basis of that data, the authors develop indices measuring the degree of openness to foreign banking based upon both commitments made and actual regulatory practice, with a view to assessing the overall extent to which countries open their borders to foreign banks more than they are legally obliged to do based upon their WTO commitments. The dataset is also used to assess the overall extent to which countries discriminate against foreign banks by regulating them less favorably than domestic banks. Although our results are still quite preliminary, they do show substantial divergences between commitments and practices. Indices of market openness and discrimination reveal wide differences among the 123 countries in the sample. The paper also identifies various factors that help explain the level of commitments that WTO Members have made.

Are market access commitments on services in Preferential Trade Agreements (PTAs) reciprocal or simply unilateral? If reciprocal, do concessions granted in services depend on concessions received from the trading partner in other services or in non-services areas as well? In this paper we investigate the presence of reciprocity in bilateral services agreements, by sub-sector, mode of supply and type of agreement (North-North, South-North, South-South). To do so, we use a database of concessions given and received by 36 WTO Members in 40 services PTAs. Results reveal the presence of reciprocity at the product (sub-sector) level and across economic sectors (i.e., preferences in services trade in exchange for preferences received in goods trade). Reciprocity is stronger in agreements between developed countries. The findings provide insights into motivations for services PTAs, but also the multilateral negotiations. Indeed, the negotiation of services PTAs provides an incentive to withhold services offers in the Doha Round in order to extract more - reciprocal- concessions at a bilateral level. The existence of reciprocity on a sectoral basis may also hold lessons on optimal ways to improve the multilateral negotiating process.

Special and differential treatment (S&D) for developing countries continues to be a defining feature of the multilateral trading system. This paper seeks to address key aspects of what has become an increasingly entangled and multi-faceted discussion. The paper begins by reviewing the historical context in which the relationship of developing countries with the multilateral trading system evolved. The paper distinguishes several elements in the case typically made for S&D. It argues that concerns about graduation — the definition of which countries qualify for special treatment —have complicated progress on this issue, suggesting that a focus on measures rather than on country status would obviate this difficulty, while at the same time increasing the analytical underpinning of the case for special and differential treatment. The paper explores various forms of S&D and develops arguments for particular approaches to the design and management of access to S&D. An illustration is provided of how a more analytical approach would work by defining eligibility automatically in relation to measures rather than countries.

Management of capital inflows has unexpectedly become a major challenge in transition economies. These countries were expected to have an insatiable demand for foreign capital, and an excess demand for capital inflows was, therefore, predicted by most observers. Foreign investors are also known to be very selective in their choice of markets, and these countries were a big unknown. Moreover, macroeconomic policy in these countries has been dominated by the objective of disinflation. We explain in this paper the reasons why some transition countries have been an attractive market for foreign investors and how important has foreign capital been for these countries. But the bulk of the paper provides an assessment of government policies to manage foreign capital inflows. We evaluate the policies against the background of different government objectives and in terms of the actual policy instruments used by the monetary authorities, the timing and sequencing and the costs of these interventions. We argue that the initial responses to capital surges were poor; the authorities were reluctant to adjust their original policies and learn from the experiences elsewhere. Eventually, their policy responses were changed but until the costs of inertia became too high. The authorities have effectively used sterilization policies, more flexible exchange rate policies combined with tight monetary and fiscal policies. They also understood that an effective management of capital flows must start from well functioning markets, and have been prepared to adopt structural policies whenever market imperfections could be identified.

The customs union between the European Union (EU) and Turkey, which entered into force in January 1996, extended and deepened the Association Agreement, signed in 1964 and which foreshadows full EU membership for Turkey. In a number of areas, the new relationship goes beyond the minimum requirements for a customs union: Turkey is also having to implement a number of measures which are part of the acquis communautaire, similar to those applicable within the EU. This paper addresses the question whether this adoption of the EU model is beneficial to Turkey and third countries. The importance of this issue is the spreads of this model through the extension of the EU itself and the building of an increasing web of partnerships between the EU and other countries in Central and Eastern Europe as well as Mediterranean countries. Moreover, other regions are looking at the EU model as a way in which to deepen their own preferential trading arrangements.