Economic research and trade policy analysis

We analyse the degree of preference utilization in four major importing countries (Australia, Canada, EU and US) and provide evidence that preferences are more widely used than previously thought. For Australia and Canada, we have obtained a new dataset on imports by preferential regime that has so far not been publicly available. For the EU and US, we make use of more disaggregated data than previously used in the literature. We empirically test what determines utilization rates. In line with previous studies, we find that utilization increases with both the preferential margin and the volume of exports, suggesting that using preferences can be costly. However, we also find that utilization rates are often very high, even for very small preferential margins and/or very small trade flows, which contradicts numerous estimates that average compliance costs are as high as 2-6%. We extend the existing literature in relation to both data and methodological issues. In particular, we construct "pseudo transaction-level" data that allows us to assess more precisely when available preferences are utilized. Using this methodology, we obtain a more realistic estimate of what determines utilization. Rather than constituting a percentage share of the trade value, our findings indicate that utilization costs involve an important fixed cost element. We provide estimates for such fixed costs, which appear to be in the range of USD 14 to USD 1,500.

It is becoming increasingly important to put freshwater issues in a global context. Local water depletion and pollution are often closely tied to the structure of the global economy. With increasing trade between nations and continents, water is more frequently used to produce exported goods. International trade in commodities implies long-distance transfers of water in virtual form, where virtual water is understood as the volume of water that has been used to produce a commodity and that is thus virtually embedded in it. Knowledge about the virtual-water flows entering and leaving a country can cast a completely new light on the actual water scarcity of a country. For example, Jordan imports about 5 to 7 billion m3 of virtual water per year, which is in sharp contrast with the 1 billion m3 of water withdrawn annually from domestic water sources. This means that people in Jordan apparently survive owing to the import of water-intensive commodities from elsewhere, for example the USA.

The article analyses the role of international supply chains as transmission channels of a financial shock. Because individual firms are interdependent and rely on each other, either as supplier of intermediate goods or client for their own production, an exogenous financial shock affecting a single firm, such as the termination of a line of credit, reverberates through the productive chain. The transmission of the initial financial shock through real channels is tracked by modelling input-output interactions. The paper indicates that when banks operate at the limit of their institutional capacity, defined by the capital adequacy ratio, and if assets are priced to market, then a resonance effect amplifies the back and forth transmission between real and monetary circuits. The paper illustrates the proposed methodology by computing a supply-driven indicator (IRSIC) and indirect demand-driven impacts on five interconnected economies of different characteristics: China, Japan, Malaysia, Thailand and the United States.

This paper provides an overview of institutional, economic and legal aspects of the relationship between national environmental policies and the multilateral trading system. In particular, it analyses some of the difficulties the WTO Dispute Settlement System faces when having to evaluate disputes on national environmental policies that have an impact on trade. From an economist's point of view it would be desirable that optimal environmental policies, i.e. policies that correct existing market failures, be ruled consistent with multilateral trade law. This paper argues that WTO law in theory provides appropriate tools to ensure rulings that are consistent with economic thinking. Yet, the paper also argues that economists have a rather imperfect knowledge of the precise welfare effects of different types of environmental policies. In practice, therefore, it is questionable whether economists are able to give adequate guidance to legal experts when it comes to the evaluation of national environmental policies. This is one of the reasons why there continues to be some degree of uncertainty as to the possible interpretations of certain WTO rules in the context of environmental disputes.

In this paper, interpretation and application dispute settlement provisions of European Union (EU) Free Trade Agreements (FTAs) signed between 1963 and 2006 are analysed. This will be through the two models of Dispute Settlement in International Law: the political and adjudicative. Political elements of dispute settlement mechanisms in Public international Law and General Agreement of Tariffs and Trade (GATT) served to establish those of the EU FTAs. Adjudicative and quasi-adjudicative elements of dispute settlement mechanisms of Public International Law and World Trade Organization (WTO) Law were used as parameters to set up those of the EU FTAs. These parameters also helped to define a new and unique hybrid model. The features of this model were found in Agreements with trade issues other than FTAs. It is possible, however, for future FTAs to incorporate them. The hybrid model is based on an adjudicative framework and includes both political and adjudicative elements. In conclusion, it was found that even though WTO Members incorporated adjudicative elements in the Dispute Settlement Understanding (DSU), the EU did not incorporate them bilaterally for a further five years. Furthermore, since the creation of the DSU in 1995, the EU has established more FTAs based on a political model than on a quasi-adjudicative. Consequently, the quasi-adjudicative dispute settlement model has not represented a clear trend in EU FTAs.

In this paper we provide some evidence of the common claim that STCs improve transparency and monitoring as well as help mitigate trade conflicts.

This paper examines liberalization of the basic telecommunications sector in a number of Asian countries and the role of the General Agreement on Trade in Services (GATS) in this process. It begins by explaining the working of the GATS as a mechanism for multilateral liberalization efforts. It then presents a description of the reforms taking place in the telecom regimes of selected Asian countries, and of the commitments these countries made in the recent GATS negotiations. The paper explores the reasons why governments have taken advantage of the GATS negotiations to make multilateral market-opening commitments, even though they were not pursuing export interests. The paper also considers the limits to what was achieved by way of liberalization commitments in the negotiations. Allowing greater foreign equity participation without liberalizing the conditions of entry may raise national welfare concerns. Furthermore, certain governments could have taken greater advantage of the opportunity under GATS to precommit to future liberalization.

This paper looks at the extent to which the shift in the lower value added production to countries in the following development "tier" is actually becoming a reality.

Non-transparency is a term given in this paper to a set of government policies that increase the risk and uncertainty faced by economic actors foreign investors. This increase in risk and uncertainty stems from the presence of bribery and corruption, unstable economic policies, weak and poorly enforced property rights, and inefficient government institutions. Our empirical analysis shows that the degree of non-transparency is an important factor in a country's attractiveness to foreign investors. High levels of non-transparency can greatly retard the amount of foreign investment that a country might otherwise expect. The simulation exercise presented in the statistical part of this paper reveals that on average a country could expect 40 percent increase in FDI from a one point increase in their transparency ranking. Pari passu, non-transparent policies translate into lower levels of FDI and hence lower levels of welfare and efficiency in the host country's economy. A nation that takes steps to increase the degree of transparency in its policies and institutions could expect significant increases in the level of foreign investment into their country. This increased investment translates into more resources, which in turn increases social welfare and economic efficiency.

Despite its substantial and increasing importance to health systems and inclusive economic growth, the relationship between international trade in services and health worker mobility has been largely unexplored. However, international health worker mobility and trade in services have both been increasing rapidly, and at a growing pace in recent years.

Using a dataset of 138 countries over a period from 1966 to 2004, this paper analyses the relevance of country specific shocks for income volatility in open economies. We show that exposure to country specific shocks has a positive and significant impact on GDP volatility. In particular, we find that the degree to which the cycles of different trading partners are correlated is more important in explaining exporters’ GDP volatility than the volatility of demand in individual export market. We also show that geographical diversification is a significant determinant of countries' exposure to country specific shocks. Keywords: income volatility, geographical export diversification, external shocks.

This paper gives insights into the possible trade creating effects of service trade liberalization via Mode 4. In particular we expect that temporary movements of persons, like permanent movements, have the potential to reduce transaction costs for merchandise trade between home and host country. Exploiting data on H-1B beneficiaries from different origins in the United States and using a gravity model of trade, we find significantly positive effects of temporary movements of persons on bilateral merchandise trade. In addition to this, the paper provides insights into the determinants of temporary movements of persons.

The Cotonou Agreement introduces new fundamental principles with respect to trade between the European Union and African, Caribbean and Pacific countries relative to the Lomé Convention: in particular non-reciprocal preferential market access for ACP economies will only last until 1 January 2008. After that date, it will be replaced by a string of Economic Partnership Agreements meant to progressively liberalise trade in a reciprocal way. The progressive removal of barriers to trade is expected to result in the establishment of Free Trade Agreements between the EU and ACP regional groups in accordance with the relevant WTO rules and help further existing regional integration efforts among the ACP. In this paper, an applied general equilibrium model (15 regions, 9 sectors) is used to simulate the impact of EPAs for countries of the Southern African Development Community. The standard Global Trade Analysis Project (GTAP) model has been extended to include the elimination of textile quotas, EU enlargement to 25 members as well as tax revenue sharing and a common external tariff among Southern African Customs Union countries. A number of comparisons between different scenarios are undertaken, in particular: (i) the EPA scenario is compared to the multilateral liberalization scenario; (ii) SADC liberalization with the EU only is compared to a scenario with simultaneous regional integration among African economies and to the case of the EU also signing an FTA with Mercosur; and (iii) a complete reduction of import barriers is contrasted with partial liberalization (i.e. only 50 per cent tariff reductions in agriculture) and with full trade liberalization that includes the elimination of subsidies. The issue of tariff revenue loss is also addressed and the required tax replacement is calculated. Selected experiments are re-run under an unemployment closure. Simulation results show that EPAs with the EU are welfare-enhancing for SADC overall, leading also to substantive increases in real GDP. For most countries further gains may arise from intra-SADC liberalization. The possibility of the EU entering an FTA with other countries, such as Mercosur, reduces estimated gains, but they still remain largely positive. Similarly, estimated gains need to be revised downwards if agriculture liberalization is not as far reaching as a reduction of import barriers for manufactures. At the sectoral level, the largest expansions in SADC economies take place in the animal agriculture and processed food sectors, while manufacturing becomes comparatively less attractive following EU-SADC liberalization. Interestingly, multilateral liberalization would instead foster some of the manufacturing sectors (textile and clothing and light manufacturing). Results also show the need for the SACU tariff pooling formula to be adjusted to reflect new import patterns as tariffs are removed.

Decision making in the WTO has become ever more difficult as the number of members increases and the range of issues tackled broadens. This paper looks at reasons why aspects of decision-making might be changed and discusses a number of potential pitfalls that change would have to avoid, such as a dilution of commitments and fragmentation of the multilateral trading system. It then takes a detailed look at the notion of ‘critical mass’ decision-making. It argues for this approach under certain conditions, as it would: i) allow for the emergence of a more progressive and responsive WTO agenda; ii) blunt the diversion of trade cooperation initiatives to RTAs; iii) allow more efficient differentiation in the levels of rights and obligations among a community of highly diverse economies; and iv) promote greater efficiency in multilaterally-based negotiations on trade rules, and perhaps, sectoral market access agreements.

The WTO Secretariat has published a new information note about how the global intellectual property (IP) system relates to the COVID-19 pandemic and potential contributions it could make to efforts to address it. The note provides an overview of IP-related measures taken by WTO members and other stakeholders since the start of the crisis.

Trade finance shortfalls now appear regularly. Does this matter for trade expansion and economic development in developing countries? Global trade finance has resumed following the 2009 global financial crisis. However, the pattern of recovery has been uneven across countries and categories of firms. The recovery has been robust for the main routes of trade and for large trading companies. By contrast, access to trade finance remains costly and scarce in countries which have the strongest potential for trade expansion. We introduce new data from a global survey of firms to argue that real shortfalls are exacerbated by perception gaps in a way that has enabled market failures to persist. This has troubling implications most directly through its effect on the ability for small firms to benefit from the reallocation of production and investment within global supply chains.

The WTO Secretariat has published a new information note on trade-related issues for COVID-19 vaccine production, manufacturing and deployment. The note, entitled “Developing and delivering COVID-19 vaccines around the world,” explores how trade policy can play its part in ensuring the rapid roll-out of vaccines against COVID-19.

In this report we first give a brief overview of trade in seafood and seafood production. We then review the basic bioeconomic theory of the fishery and pinpoint why fisheries are different from most other industries. We next review the theoretical literature on trade and renewable resources that shows how unconventional outcomes from trade liberalization can emerge. Given this background, we discuss the most important policy issues in relation to seafood and trade, including sections on managing the global commons and domestic trends in management. In the final section, we discuss specific issues that are germane to the WTO and its rules.

This paper discusses how information and communication technology (ICT) affects the quality and reach of consumer services. These services need to be provided locally, but consist of several components, some of which can be digitised and transmitted over long distances. A general equilibrium model is developed and numerical simulations in a stylised two-factor, two-region, centre-periphery setting are presented. Trade in intermediate services improves the quality of consumer services enormously in the periphery, but may reduce the quality at the centre. Trade in intermediate services also has a dramatic impact on skilled workers’ wages in the periphery, both relative to unskilled workers in their own region and relative to skilled workers at the centre and leads to a more equal distribution of income both between the centre and the periphery and within the periphery.

This is a revision and update of "Intellectual Property Provisions in Regional Trade Agreements" by Valdés and Runyowa (2012). This paper adjusts the methodology applied to assess the intellectual property (IP) provisions contained in regional trade agreements (RTAs) and the aggregation of such provisions into groups; it also updates the RTAs surveyed, from 194 in November 2010 to 245 in February 2014. New information contained in this revision relates to three IP-related investment and non-violation provisions in RTAs. The methodological revisions and new information result in changes to the assessment of the IP content of certain RTAs while the update reveals a growing and increasingly complex network of RTAs with IP content. This revision also provides new insights into possible improvements to the methodological toolkit for analysing IP in RTAs. The paper assembles detailed information about the IP provisions contained in active RTAs notified to the WTO. The goal was to expand beyond the more commonly studied RTAs, to review the full array of agreements notified to the WTO and thus to enable consideration of the implications of this diverse range of norm-setting activity for the multilateral system. Mapping of the IP content in RTAs involving parties from all regions and levels of development is necessary to better understand crosscutting trends in RTAs, and how all the parts of the international IP framework influence each other. The methodology followed involved surveying each RTA in the sample to determine whether it made reference to any of 32 different IP-related provisions. Two of the three IP-related provisions new to this revision and update are investment-related IP provisions, while the other concerns dispute settlement for non-violation claims. The relevant provisions are discussed in detail and summary statistics used to identify patterns over time and by continent, level of economic development and selected traders. The number of IP provisions in each RTA is then used to classify agreements according to their level of IP content. The first significant identified trend is the acceleration in the conclusion of RTAs with IP provisions after the creation of the WTO and the entry into force of the WTO TRIPS Agreement. A significant proportion of those RTAs contain some type of IP provision, but the number and type of those provisions vary widely across agreements. A majority of the RTAs surveyed include general IP provisions, while a smaller proportion contains explicit provisions on specific fields of IP law, such as geographical indications, patents, trademarks and copyright. The inclusion of even more detailed provisions elaborating on specific areas of IP law is less common. As a result, the actual IP content of RTAs differs greatly across the sample, with slightly less than half of these agreements found to havesubstantive IP standards that can be classified as moderate or high. The RTAs containing a high level of IP provisions are characterized by a hub-and-spoke architecture in which the wording and structure of IP provisions converged around the RTAs of specific countries or blocs. The largest systems are grouped around the EFTA, the European Union and the United States. The hub-and-spoke architecture seems to have encouraged the convergence of domestic IP regimes among the respective RTA signatories. The mechanics of this potentially crucial process and its economic implications require further investigation.

Trade has been recognized in the 2030 development Agenda as well as in the Addis Ababa Agenda for Action as an important means for the implementation of the Sustainable Development Goals (SDGs).

In this paper, the two way relationship between deep integration and production networks trade is investigated. Deep integration is captured by a set of indices constructed in terms of policy areas covered in preferential trade agreements. An augmented gravity equation is estimated to investigate the impact of deep integration on production networks. The results show that on average, signing deeper agreements increases production networks trade between member countries by almost 35 percentage points. In addition, the impact of deep integration is higher for trade in automobile parts and information and technology products compared with textiles products. To analyse whether higher levels of network trade increase the likelihood of signing deeper agreements the literature on the determinants of preferential trade agreements is followed. The estimation results show that, after taking into account other PTAs determinants, a ten per cent increase in the share of production network trade over total trade increases the depth of an agreement by approximately 6 percentage points. In addition, the probability of signing deeper agreements is higher for country pairs involved in North-South production sharing and for countries belonging to the Asia region.

In spite of their growing importance in international trade as well as in bilateral and multilateral trade negotiations, services have only attracted limited attention from researchers interested in determinants of trade policies and trade cooperation. This paper seeks to account for countries' varying levels of market access commitments under the multilateral General Agreement on Trade in Services (GATS). I develop an argument suggesting how levels of democracy and factor endowments are associated with more commitments. The empirical analysis supports these propositions, and also suggests that relative size, as well as regulatory capacity, are positively linked to GATS commitments.

This paper surveys a wide body of economic literature on the relationship between currencies and trade. Two main issues are investigated: the impact on international trade of exchange rate volatility and of currency misalignments. On average, exchange rate volatility has a negative (even if not large) impact on trade flows. The extent of this effect depends on a number of factors, including the existence of hedging instruments, the structure of production, and the degree of economic integration across countries. Exchange rate misalignments are predicted to have short-run effects in models with price rigidities, but the exact impact depends on a number of features, such as the pricing strategy of firms engaging in international trade and the importance of global production networks. This effect is predicted to disappear in the long-run, unless some other distortion characterizes the economy. Empirical results confirm that short-run effects can exist, but their size and persistence over time are not consistent across different studies.

This paper examines the background of Article 66.2 of the TRIPS Agreement, the nature of this obligation on developed country Members that pertains to the promotion of technology transfer to LDC Members and how it is being implemented and how such implementation is being monitored in the TRIPS Council.