Economic research and trade policy analysis

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.

Commitments in regional trade agreements (RTAs) that fall short of the same countries' obligations under the General Agreement on Trade in Services (GATS) are a relatively frequent phenomenon. However, they have gone widely unnoticed in the literature to date and drawn very little attention in relevant WTO fora either. Nevertheless, 'minus commitments' are potentially poisonous and, for various reasons, would deserve close attention. Given the broad definitional scope of the GATS, extending inter alia to commercial presence, such commitments may impinge upon the rights of third-country investors in the RTA economies. Their existence casts doubts on the legal status of the respective agreements under the GATS and can have severe implications for the trading system overall. If not complemented by comprehensive Most-favoured-Nation clauses, the RTAs concerned are disconnected from the WTO and virtually impossible to multilateralize. Based on a review of some 80,000 commitments in 66 agreements, this study seeks to develop a reasonably comprehensive picture of the frequency of 'minus commitments' and their dosage in terms of sectors, measures and modes of supply. It also discusses potential remedies from a WTO perspective.

Policy uncertainty can delay investment and reduce the response to policy change. I provide theoretical and novel quantitative evidence for these effects by focusing on trade policy, a ubiquitous but often overlooked source of uncertainty, when a firm's cost of export market entry is sunk. While an explicit purpose of the World Trade Organization (WTO) is to secure long term market access, little theoretical and empirical work analyzes the value of WTO institutions for reducing uncertainty for prospective exporters. Within a dynamic model of heterogeneous firms, I show that trade policy uncertainty will delay the entry of exporters into new markets and make them less responsive to applied tariff reductions. Policy instruments that reduce or eliminate uncertainty such as binding trade policy commitments at the WTO can increase entry even when applied protection is unchanged. I test the model using a disaggregated and detailed dataset of product level Australian imports in 2004 and 2006. I use the variation in tariffs and binding commitments across countries, products and time, to construct model-consistent measures of uncertainty. The estimates indicate that lower WTO commitments increase entry. Reducing trade policy uncertainty is at least as effective quantitatively as unilateral applied tariff reductions for Australia. These results illuminate and quantify an important new channel for trade creation in the world trade system.

WTO arbitrators rely on economics to establish the permissible retaliation limits authorized by the Dispute Settlement Understanding (DSU) which arguably serves to enforce the overall agreement. We examine how theoretical and quantitative economic analysis has and can be used in this stage of the DSU process. First, we identify, characterize, and categorize the major classes of disputes – e.g., those affecting import protection versus export promotion – and use the Bagwell and Staiger interpretation of the WTO principle of reciprocity to provide a theoretical framework that arbitrators can use to identify the maximum level of retaliatory countermeasures. Second, we allocate each of the ten DSU arbitrations that have taken place thus far into one of these categories and compare the arbitrators’ actual approach with the theory. Third, we use this framework to identify three crucial elements to the arbitrators' decisionmaking process for each case: i) the formula that they decide to adopt for identifying appropriate countermeasures, ii) their political-legal-economic decision on a WTOconsistent counterfactual to use to implement the formula, and iii) the quantitative methods they use to necessarily construct the (unobserved) WTO-consistent counterfactual. We examine not only the arbitrations that have taken place thus far, but our approach also illustrates a template for many additional types of arbitrations likely to take place under the DSU. Finally, in the disputes in which this reciprocity approach has not been used, we identify procedural difficulties that arbitrators confront thus highlighting the constraints that hinder their use of economic analysis in practice.

We estimate the effects of trade facilitation on the extensive margins of trade. Using OECD Trade Facilitation Indicators – which closely reflect the Trade Facilitation Agreement negotiated at the Bali WTO Ministerial Conference of December 2013 – we show that trade facilitation in a given exporting country is positively correlated with the number of products exported by destination and with the number of export destinations served by product. To address the issue of causality, we employ an identification strategy whereby only exports of new products, or exports to new destinations, are taken into account when computing the respective margins of trade. Our findings therefore imply a positive causal impact of trade facilitation on the extensive margins of trade. The results are, to a large extent, robust to alternative definitions of extensive margins, to different sets of controls variables and to various estimation methods. Simulating the effect of an increase to the regional or global median values of trade facilitation, we are able to quantify the potential extensive margin gains of trade facilitation reform in different regions.

Better information on how services policies vary across economies and sectors over time would improve the empirical analysis of their impact. This paper describes the Services Trade Policy Database (STPD), a joint initiative by the World Bank and the WTO Secretariat, which builds on a database developed by the World Bank nearly ten years ago and draws on a recent OECD database.

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

A new information note published by the WTO Secretariat looks at how the COVID-19 pandemic has affected the participation of least-developed countries (LDCs) in global trade. The note stresses that LDCs have seen a significant decline in export earnings due to decreasing demand in key markets, falling commodity prices and a decline in remittances and are likely to be the hardest hit by the crisis due to their limited resources to stimulate growth.

In a rapidly changing trade environment, marked by economic slowdown and impasse in the Doha Round, the success of the WTO in promoting and legitimizing the rules-based multilateral trading system rests, to a large extent, on maintaining effective relations with civil society, including non-governmental organisations. This paper provides an overview of the WTO's rules and practices for transparency and engagement with NGOs. First, it looks at both internal and external transparency. Second, it deals with how the WTO engages with civil society and illustrates how this has evolved over time. Third, it looks at how NGOs and civil society contribute to the dispute settlement process. In concluding, it explores whether there is scope for enhancing the WTO's current practices for engagement with NGOs, and if so how. It also offers some suggestions on how NGOs can render the WTO more accountable to the public. One area in which the WTO's practices for transparency and channels of engagement with civil society actors has evolved considerably is dispute settlement. Although only WTO members can bring a dispute to the WTO, the practice of opening hearings to the public, upon the parties' request, and inviting contributions from non-members, including NGOs, shows to what extent WTO transparency and engagement with civil society have improved in recent times. In particular, NGOs have assisted parties to a dispute prepare their briefs. This has included annexing studies to the parties's submissions, submitting amicus curiae briefs, and supporting the panel as experts under Article 13 of the WTO's Dispute Settlement Understanding (DSU). Forging links with civil society is a formidable task for any intergovernmental organization; at issue are the rights of governments to set WTO policy and the need to respect the voices of those without a vote. Although the WTO's rules for engagement with civil society based on Article V:2 of the Marrakesh Agreement and further elaborated in the 1996 Guidelines have not been updated, the actual practices for engagement have evolved considerably over time and it is likely that they will continue to be improved upon in the future.

This paper deals with claims, recently raised in various circles, that structural faults in the General Agreement on Trade in Services (GATS) have prevented WTO Members from advancing services liberalization under the Agreement. The GATS is generally associated in this context with a bottom-up (positive-list) scheduling approach where the sectors on which trade commitments are undertaken are selected individually. This is claimed to be less efficient, in terms of liberalization effects, than alternative approaches under which everything is considered to be fully committed unless specifically excluded (top-down or negative listing). However, a closer look at services negotiations conducted in various settings, including the Doha-Round process, WTO accession cases and different types of regional trade agreements, suggests that such structural issues have limited, if any, impact on the results achieved. What ultimately matters are not negotiating or scheduling techniques, but the political impetus that the governments concerned are ready to generate.

This paper investigates how RTAs treat disputes concerning their TBT provisions, in particular whether they treat them differently from other types of dispute, and how they deal with any potential overlap with the WTO when the substantive obligations of the RTA and the WTO TBT Agreement are the same (or similar).

This paper brings together three strands of literature on the determinants of international trade – distance, formal, and informal institutions – to explain differences in export performance across countries. Using an augmented gravity model, we find that the importance of formal institutions (rule of law) for bilateral trade increases with distance.

The WTO TBT Agreement obliges governments to use international standards as a basis for regulation, yet leaves a degree of flexibility with respect to the choice of standard, and the manner of its use. This interplay between obligation and flexibility has given rise to tension in various fora of the WTO. This paper brings together these three distinct strands of WTO work to illustrate core aspects of the international standards debate at the WTO. In our analysis we first briefly outline the nature of the discipline in the TBT Agreement itself; next, we describe where and how the discussion arises in the WTO; and, finally, explore some implications of governance of international standard setting. We propose that greater regulatory alignment could be achieved through a renewed focus on the procedures of setting international standards (the how), and greater emphasis on robust technical/scientific underpinnings of such standards (the what).

The objective of this paper is to assess the adequacy of multilateral rules dealing with monopolies and state enterprises, particularly in the domain of services. This paper argues that since these rules depend largely on the other obligations undertaken by Members, a variety of exemptions and exclusions have weakened the rules considerably. Furthermore, liberalization of services trade, aided by negotiations under the GATS, is leading to changes in market structure and the pattern of ownership. These changes imply that government-mandated monopolies or non-competing oligopolies are disappearing from the infrastructural services for which Article VIII of GATS is most relevant. The behaviour of dominant suppliers that often remain does not fall within the scope of Article VIII and has been addressed by creating other disciplines. The paper assesses how much emphasis needs to be placed on pro-competitive regulation to ensure competitive market conditions and argues that there is a need to strengthen Article VIII and widen its scope to deal with certain generic problems.

Women are likely to be harder hit than men by trade disruptions caused by the COVID-19 pandemic and the dangers are particularly acute in developing countries according to a new information note from the WTO Secretariat. The paper points to how governments’ policy responses could address gender-specific effects of the crisis.

Global Manufacturing and International Supply Chains changed the way trade and international economics are understood today. The present essay builds on recent statistical advances to suggest new ways of looking at the demand and supply side approaches when Global Value Chains (GVCs) — articulating supply and demand chains from an international perspective-are taken into consideration. This pilot case focuses on the G-20 countries, a group of leading developed and developing economies which took a prominent role in fostering and managing global economic governance. The paper is organised into two independent parts. The demand dynamics is first analysed through a growth-accounting decomposition, then through the long term determinants of income elasticity of imports. The second part looks at the implications of global manufacturing for our understanding of the supply-side growth dynamics, privileging a trade perspective: the definition of comparative advantages and the potential for value-chain up-grading.

The main purpose of the paper is to present the coverage of SPS systems in SSA countries by TPR reports, and their main findings. It also opens the discussion as to whether the SPS analytical framework in TPR reports has been sufficiently comprehensive and beneficial in guiding technical assistance (TPR follow-up) activities in SSA. At the outset, we briefly present the strategic importance of agriculture in SSA countries, with a description of the link between an effective SPS regulatory system and the performance of agriculture.

A little over a decade has passed since the onset of the global financial crisis in 2008. Shortly after the collapse of the Lehman Brothers investment bank, an internal Secretariat Task Force was established by the WTO Director-General to monitor the trade-related developments associated with the crisis. Meeting in London in early 2009, the G20 Leaders mandated the WTO, together with other international bodies, to monitor and report publicly on G20 adherence to resisting protectionism and promoting global trade and investment. Since then, 22 G20 reports and 24 WTO-wide reports have been published.