Economic research and trade policy analysis
World Trade Report 2003
The World Trade Report is a new annual WTO publication focused on trade trends and policy issues. The 2003 edition examines developments in South-South trade trends in commodity markets and the growth of Regional Trade Agreements.
The role of trade and trade policy in the development process
Different aspects of the development process have been emphasized by the many scholars and observers who have ventured into this field. The seminal work of Sen (1999) identifies freedom as both the primary end and principal means of development. The Brundtland Commission stressed that development must involve the care and nurturing of the environment for future generations. Others have focused particularly on poverty reduction and the empowerment of poor people. All these approaches consider economic growth a vital component of the development process while emphasizing that development is about more than growth.
Fragmented Production
This paper explores the impact of vertical specialization on world trade within the framework of the O-ring theory of production. Within such a framework there is little scope for substituting quantity for quality or for gaining market shares by undercutting established suppliers purely on cost. Furthermore quality requirements will increase as lead firms in the supply chain invest in technology that reduces inventory and speeds up the production process. It is shown that potential suppliers in low-cost countries will only have an incentive to upgrade quality if adequately efficient infrastructure logistics and customs procedures are in place. Changing trade patterns between USA and Mexico and China suggests that proximity and low trade barriers are important determinants of the extent and nature of vertical specialization. Thus a larger share of Mexico's trade with USA is driven by vertical specialization than China's trade with USA. Nevertheless China has caught up with Mexico as far as share in US total imports is concerned and the market share gap has narrowed even in electronics the sector in which vertical specialization is most prominent. It appears that vertical specialization adds to total world trade rather than replacing traditional trade flows.
Is Trade Liberalization a Window of Opportunity for Women?
This paper analyses how trade affects women's job opportunities and earnings through five case studies: Mauritius Mexico Peru the Philippines and Sri Lanka. It is found that women's share of the labour force has increased over time and the wage gap between men and women has narrowed. It is also found that there is a positive and statistically significant relation between exports and women's share of employment while there is a statistically significant and negative correlation between women's share in employment and imports. The correlation between women's share of employment and trade stems from variation between sectors rather than within sectors over time indicating that export-competing industries tend to employ women while import-competing industries tend to employ men. Trade liberalization is likely to create jobs for women and over time increase their relative wages.
ICT, Access to Services and Wage Inequality
This paper discusses how information and communication technology (ICT) affects the quality and reach of consumer services. These services need to be provided locally but consist of several components some of which can be digitised and transmitted over long distances. A general equilibrium model is developed and numerical simulations in a stylised two-factor two-region centre-periphery setting are presented. Trade in intermediate services improves the quality of consumer services enormously in the periphery but may reduce the quality at the centre. Trade in intermediate services also has a dramatic impact on skilled workers’ wages in the periphery both relative to unskilled workers in their own region and relative to skilled workers at the centre and leads to a more equal distribution of income both between the centre and the periphery and within the periphery.
Executive summary
This report deals with the relevant WTO Agreements and the way they may influence health and health policies. In undertaking this joint study the WHO and WTO Secretariats seek to examine the linkages between trade and health policies so as to enable both trade and health officials to better understand and monitor the effects of these linkages.
Foreword
As the world becomes increasingly integrated it becomes less and less possible for different policy areas to be handled independently of each other. The linkage between trade and health has been the focus of much debate: real concerns should be dealt with and any misunderstandings should be clarified based on sound evidence and rigorous analysis.
Acknowledgements
This report was jointly prepared by the World Health Organization (WHO) and the Secretariat of the World Trade Organization (WTO).
The WTO agreements relevant to health
The World Trade Organization (WTO) is a relatively new international organization. However it is responsible for a system that is over 50 years old. Established on 1 January 1995 the WTO replaced the General Agreement on Tariffs and Trade (GATT) which dated back to 1948. This was a consequence of a decision taken by governments after seven and a half years of negotiations (the "Uruguay Round") which ended in 1994. With the WTO's creation the rules were expanded to new areas. While the GATT dealt with trade in goods only the WTO covers trade in services and intellectual property as well. There are also some areas such as textiles agriculture and sanitary and phytosanitary measures where the WTO goes beyond the GATT by having established specific trade rules. Under the WTO the procedure for settling trade disputes has also been strengthened.
Introduction
Trade the exchange of goods services and information between individuals or groups is as old as human history. Expanding trade is a central component of the increasing connectedness among countries.
Towards health and trade policy coherence
There is common ground between health and trade and between the objectives of the WHO and the WTO. The WHO's objective is "the attainment of all peoples of the highest possible level of health" and WHO defines health as "a state of complete physical mental and social well-being and not merely the absence of disease or infirmity". Good health is one important building block for sustainable economic development. With regard to trade an underlying assumption is that a liberal international trade regime subject to reasonably stable and predictable conditions improves the climate for investment production and employment creation and therefore contributes to economic growth and development. Generally the health status of a country is affected positively by such growth. This expectation is reflected in the opening words of the agreement establishing the World Trade Organization
WTO Agreements & Public Health
This joint study by the World Health Organization and the World Trade Organization Secretariat on the relationship between trade rules and public health. The study explains how WTO Agreements relate to different aspects of health policies. It is meant to give a better insight into key issues for those who develop communicate or debate policy issues related to trade and health. The study covers areas such as drugs and intellectual property rights food safety tobacco and many other issues which have been subject to passionate debate. In this joint effort the first of its kind WHO and the WTO Secretariat endeavour to set out the facts.
Specific health issues and WTO agreements
As noted in the preceding Chapter several WTO agreements are relevant to health policy. Generally the positive growth and income effects of more open and predictable trade regimes can provide the resources as well as goods services and information for effective health systems. The WTO agreements explicitly allow governments in pursuing national health and other policy objectives to take measures to restrict trade in order to protect health. This is legitimate as a matter of principle. The emphasis in WTO rules is on how policies are pursued without questioning the underlying objective. For example is a measure applied or enforced in a way that discriminates between trading partners or between imported products and products produced domestically? Are there ways of implementing policy that would be less restrictive on trade? Thus it is the manner in which government pursue specific health policies in practice which might have trade-related implications which are examined in this Chapter.
Effects of WTO Accession on Policy-Making in Sovereign States
The purpose of the paper is to discuss the effects of WTO accession on policy-making and institutional reforms in transition countries. This is done by looking at the experience of those transition countries which are already Members of the WTO. We start by examining the effect of accession on trade policy and distinguish between the effects of accession negotiations and those of autonomous policy initiatives. We find that no precise blueprint of accession conditions can be ascertained that WTO played a role albeit not an exclusive one in the process of liberalization that the costs of WTO Membership are not negligible that the benefits of WTO Membership are also significant in terms of a better market access improved governance and a recourse to better economic policies.
Product Labeling, Quality and International Trade
This paper analyzes the reasons why countries may pursue different labeling policies in autarky and how this affects countries’ welfare in the context of international trade. In an asymmetric information environment where producers know the quality of the goods they are selling and consumers are not able to distinguish between them the quality governments choose to protect by a label depends on consumer preferences for and production costs of different qualities. Countries with different distributions of tastes and/or different production functions will thus decide to label differently. When they trade welfare effects will be different on the country as a whole and on different types of consumers within each country depending on whether countries choose to mutually recognize each others labeling policy or to harmonize their policies. In particular it will be the case that a country with weak preferences for high quality will oppose the introduction of an international harmonized label as it is better off under a regime of mutual recognition. When countries only differ in their costs of producing quality instead none of the trading partners will lose from a move towards trade under an international harmonized label.
The Impact of Transparency on Foreign Direct Investment
Non-transparency is a term given in this paper to a set of government policies that increase the risk and uncertainty faced by economic actors foreign investors. This increase in risk and uncertainty stems from the presence of bribery and corruption unstable economic policies weak and poorly enforced property rights and inefficient government institutions. Our empirical analysis shows that the degree of non-transparency is an important factor in a country's attractiveness to foreign investors. High levels of non-transparency can greatly retard the amount of foreign investment that a country might otherwise expect. The simulation exercise presented in the statistical part of this paper reveals that on average a country could expect 40 percent increase in FDI from a one point increase in their transparency ranking. Pari passu non-transparent policies translate into lower levels of FDI and hence lower levels of welfare and efficiency in the host country's economy. A nation that takes steps to increase the degree of transparency in its policies and institutions could expect significant increases in the level of foreign investment into their country. This increased investment translates into more resources which in turn increases social welfare and economic efficiency.
Can Trade Policy Help Mobilize Financial Resources for Economic Development?
The linkages between trade and resource mobilization are complex and not well defined in theory. To what extent does trade policy affect resource mobilization and what are the mechanisms? We argue that trade policy is a key factor of influencing the domestic fundamental balance between aggregate savings and investment. The main effect of trade policy on resource mobilization stems from its contribution to static and dynamic gains from trade. But the effect of trade policy on the supply of financial resources also operates through several channels including through linkages of trade policy with foreign investment government revenues income distribution foreign aid. The paper looks at direct and indirect channels and makes a distinction between short and long term effects of different trade strategies. We also briefly review trade barriers in goods and services affecting developing countries and the potential gains from further liberalization. The long term gains from trade liberalization are substantial but they may have to be set against short-term adjustments costs. The latter could and should be reduced by effective institutional and tax reforms.
Investment Policies and Telecommunications Regimes
The revolution in the telecommunication industry of recent years raises a number of interesting economic questions with significant policy implications. One of these questions is the extent to which foreign investments in the telecommunication industry is accompanied by policies that are conducive to cross–border investments. These policies can be both domestic and international. The discussion in this paper is limited to the latter by concentrating on the role of the WTO and other international agreements. The purpose of the paper is to evaluate the GATS/Telecom Agreement. This is done by looking at the guiding principles for negotiating market access for foreign investors by comparing the Agreement with the Telecom Agreement under NAFTA and by discussing the merits of the multilateral approach to negotiating foreign investment in the telecommunication sector. The WTO GATS/Telecom Agreement comes out rather well from this evaluation exercise.
Tariff Negotiations and Renegotiations under the GATT and the WTO
The procedures and practices to implement the provisions relating to tariff negotiations and renegotiations have evolved considerably since the GATT was established in 1947. The provisions themselves have undergone some changes in the last fifty-four years. Professor Hoda reviews the evolution of these provisions and of the procedures adopted and practices followed by the contracting parties to GATT 1947 and the Members of the WTO. He goes on to offer some conclusions and recommendations. This book will be of particular interest to negotiators including Geneva based delegations members of government trade ministries economists and all academics who specialise in trade policy.
International Trade and the Position of European Low-Skilled Labour
This paper presents a discussion of the potential channels through which international trade affects the position of low skilled workers in the European Union. After an analysis of the European Union's trade flows showing the predominant role of intra-industry trade with other industrialised countries the discussion focuses on the potential effects of intra-industry trade on low skilled labour. Particular attention is paid to possible interactions between trade and technological change and to the possible effects of trade on the price elasticity of labour. The paper also discusses how trade may affect incentives to invest in skills and thus a country's potential to alter the skill structure of its working force.
Whether and When to Liberalize Capital Account and Financial Services
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.
A Quantitative Assessment of Electronic Commerce
This paper tries to assess quantitatively the role of electronic commerce in economic activity and in trade and tariff revenue collection. The share of value added that potentially lends itself to electronic trade represents around 30 percent of GDP most importantly distribution finance and business services. Electronic commerce is also likely to boost trade in many services sectors significantly. Despite the growing importance of electronic commerce for economic activity and trade tariff revenue loss from electronic commerce is likely to be minimal. Trade in potentially digitizable media goods which currently faces a tariff in some countries represents less than one percent of total world trade. The revenue collected on these products amounts to less than one percent of total tariff revenue in most countries. Even if some of this trade moved “online” tariff revenue loss would be only a very small share of tariff revenue.
The EU Model and Turkey
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.
Financial Services Trade, Capital Flows, and Financial Stability
This study argues that trade policies regarding financial services are an important—but often neglected—determinant of capital flows and financial sector stability. Financial services trade liberalisation which promotes the use of a broad spectrum of financial instruments and allows the presence of foreign financial institutions whilst not unduly restricting their business practices results in less distorted and less volatile capital flows and promotes financial sector stability. The study finds significant evidence in favour of this claim through an empirical analysis of GATS commitments in 27 emerging markets. For example countries which experienced financial crisis during 1991-97 show a combined indicator of financial services trade restrictiveness three times as high (= less favourable for financial stability) as countries without a crisis. The study' s findings have two important policy implications. Firstly liberalising international trade in financial services can be a market-based means to improve the "quality" of capital flows and to strengthen financial systems. This would complement other policies including financial regulation. Secondly even in countries where the financial system is weak and where immediate full-fledged financial sector liberalisation is not advisable certain types of financial services trade could be liberalised as such trade strengthens the financial system without provoking destabilising capital flows.
A Simple Trade Policy Perspective on Capital Controls
This note discusses capital controls using insights from the trade policy literature. It highlights some key issues that have been neglected in the current international debate on capital controls. Capital is tradable in the same way as many goods and services are. As a result much of the analysis pertaining to trade and trade policy in goods and services applies with equal force to capital movements. Free trade is typically the best trade policy no matter whether it is trade in goods services or capital. But if investor behaviour and the prevailing policy environment are not conducive to immediate free trade the choice of instrument for controlling capital flows becomes important. Tariffs and other price-related restrictions are preferable to quantitative restrictions or prohibitions because: (i) they cause less rent seeking and (ii) they do not insulate the domestic market from price changes and innovations in international markets.
Preferential and Non-Preferential Trade Flows in World Trade
This paper quantifies the extent of preferential trade as a share of total world trade in different regions of the world and for two periods. Results show that: i) preferential trade represented 40% of world trade in the period 1988-1992 and it slightly increased to 42% during the period 1993-1997; ii) during the second period agricultural products generally benefited more from the existence of preferential trade agreements than industrial products (maybe due to GATT-exemption); iii) the regional distribution of preferential trade is relatively uneven with a significant share of preferential trade in Western Europe (around 70 per cent) relatively low values in the Western Hemisphere (around 25 per cent) very low shares in Asia and Oceania (around 4 per cent) and average values in the rest-of-the-world (Eastern Europe and Africa); iv) the largest increase in shares of preferential trade between the two periods has occurred in the Western Hemisphere and in Eastern-Europe and Africa; v) at the country level there is an inverted-u-shape relationship between the share of preferential trade and the size and GDP per capita of individual countries; vi) countries which are highly open to trade tend to have a larger share of preferential trade on total trade in the period 1993-1997 suggesting that preferential and non-preferential trade can be seen as complements.
Does Globalization Cause a Higher Concentration of International Trade and Investment Flows?
It has sometimes been argued that "globalization" benefits only a small number of countries and that this leads to greater marginalization of excluded countries. This paper argues that globalization is not necessarily biased towards greater concentration in international trade and investment flows. Marginalization is more likely to be explained by domestic policies in relatively closed countries. The paper shows that among relatively open economies the concentration of international trade and investment flows has declined over the last two decades whereas the opposite is true among relatively closed economies. Thus marginalization is not intrinsic to globalization. Key Words: Globalization international trade and investment flows concentration.
Exchange Rate Regimes and the Stability of Trade Policy in Transition Economies
This paper examines the interplay between exchange rate regimes and policies and commercial policy in six transition economies. In all these economies the rate of protection afforded domestic industry by the exchange rate has been eroded by high rates of inflation and insufficient growth in productivity. As a result there has been pressure on governments to increase trade barriers and each country examined has had recourse to various means of restricting imports. We argue that more flexible management of the nominal exchange rate would be a preferable way of dealing with the real appreciation of these countries’ currencies.
Can Bilateralism Ease the Pains of Multilateral Trade Liberalization?
Using the influence-driven approach to endogenous trade-policy determination we show how a free-trade agreement (FTA) with rules of origin can work as a device to compensate losers from trade liberalization. The FTA constructed in this paper is characterized by external tariff structures that are negatively correlated across member countries ensuring efficiency gains and through reduced average protection compatibility with the multilateral trading system's requirements. It is also politically viable and we demonstrate that in the countries concerned governments are willing to include its formation in the political agenda in spite of the fact that in equilibrium political contributions from producer lobbies decline after the agreement.
A Multilateral Agreement on Investment
Much has been recently written about the Multilateral Agreement on Investment (MAI) that has been negotiated by OECD countries. Perhaps even more has been said by the critics of those who would like to see an agreement of this kind extended among other countries. There has indeed been a great deal of "toing" and "froing" about the desirability of MAI and even misunderstandings about its merits. The principal question of this paper is whether there is any need for MAI. There are arguments in favour and against and this paper provides a short review. On balance the positive aspects of a multilateral agreement should outweigh the negative ones. The novelty of the paper is the attempt to address the critical voices. Given the lukewarm reaction in some countries it would seem sensible to pay more attention to these arguments – a feature that may only now become something of pressing need in the light of the difficulties encountered in the OECD negotiations.
Managing Capital Flows in Transition Economies with a Case-Study of Central and Eastern Europe
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.
Why are Trade Agreements more Attractive in the Presence of Foreign Direct Investment?
This paper argues that interests of nationals and owners of home-based foreign capital in the formation of a Trade Agreements (TA) are not antagonistic except under rather particular assumptions on initial tariffs among potential members. Further if initial tariffs are endogenously determined through an industry-lobbying process then TA that would have been immiserising in the absence of Foreign Direct Investment (FDI) may be welfare-enhancing in the presence of foreign-owned firms. The rationale is linked to the effect that the entry of FDI has on the pre-TA tariff through contributions to the incumbent government. These results may help explain recent integration programs between developed and developing countries.
Fiscal Policy Cycles and the Public Expenditure in Developing Countries
The paper studies empirically the fiscal policy instruments by which governments try to influence election outcomes in 24 developing countries for the 1973-1992 period. The study finds that the main vehicle for expansionary fiscal policies around elections is increasing public expenditure rather than lowering taxes and public investment cycles seem particularly prominent. Institutional mechanisms which constrain discretionary expenditure policies and which strengthen fiscal control are therefore worthwhile considering to prevent opportunistic policy making around elections.
Tying Governments' Hands in Commodity Taxation
In the 1970s taxation of "windfall" profits from primary products and intervention in trade and production tempted governments into expansionary fiscal policies whilst stifling the private sector and depressing growth. However the experience of the recent coffee boom has so far been more favourable: those African countries which liberalized and left a large share of the “windfall” with the private sector and which committed themselves to fiscal austerity via adjustment programs have shown better results in terms of fiscal stability private sector responses and economic growth than countries which did not reform. These findings suggest that constraints on discretionary government policies are desirable and that domestic institutions and international commitments could serve this purpose.
Multilateral Approaches to Market Access Negotiations
Market access negotiations in merchandise trade at the multilateral level cover tariffs and non-tariff measures (NTMs). While tariffs have been substantially reduced in earlier rounds they remain high in certain areas and further reductions involve a number of complex technical issues. Some formulae approaches not used in the Uruguay Round seem more favourable to developing countries. Elimination or phased reductions of NTMs in agriculture is one of the main areas for further market access negotiations in trade in goods. However most NTMs are now the subject to negotiations on the rules under which they may be applied e.g. in the areas of contingency protection and technical barriers to trade.
Transition Economies, Business and the WTO
Transition economies are going through a process of changing the role of the state allowing a greater role for the private sector. This is consistent with the market-oriented approach of the WTO. Remaining state agencies and enterprises will need to adapt their ways of doing business including in their approach to procurement of goods and services for economic and legal reasons. There is some hesitation about privatization as for foreign direct investment and where accepted about the precise timing. Where privatization of basic service monopolies occurs the role of the state shifts towards a regulatory function. In some private sector activities a non-interventionist approach to competition may be justified by market considerations while in others a pro-active policy may be necessary to ensure the benefits of economic liberalization.
Financial Services and the WTO
This paper analyses the results of the financial services negotiations under the General Agreement on Trade in Services (GATS) at the World Trade Organization (WTO). It shows that the negotiations have contributed to more stable and transparent policy regimes in many developing and transition countries. The wide range of market access and non-discrimination commitments should advance the process of progressive liberalization. The commitments do not compromise the ability of countries to pursue sound macroeconomic and regulatory policies. However other aspects of the outcome do raise some concerns. First there has been less emphasis on the introduction of competition through allowing new entry than on allowing (or maintaining) foreign equity participation and protecting the position of incumbents. Secondly even where immediate introduction of competition was not deemed feasible not much advantage has been taken of the GATS to lend credibility to liberalization programmes by precommitting to future market access.
Fiscal Policy Cycles and the Exchange Regime in Developing Countries
The paper studies empirically fiscal policies around elections in 25 developing countries as affected by the exchange regime. It is argued that countries with flexible exchange regimes are less likely to engage in expansionary fiscal policies before elections because such policies can result in devaluations and inflation which affects government popularity adversely. The empirical results show that governments indeed try to improve their re-election prospects with the help of expansionary fiscal policies only in countries with fixed exchange rates and adequate reserve levels. For some countries this raises doubts about the usefulness of fixed exchange rates for stabilizing the macro economy unless reforms of the institutional framework reduce the scope for election-oriented fiscal expansion.
Reform in Basic Telecommunications and the WTO Negotiations
This paper examines liberalization of the basic telecommunications sector in a number of Asian countries and the role of the General Agreement on Trade in Services (GATS) in this process. It begins by explaining the working of the GATS as a mechanism for multilateral liberalization efforts. It then presents a description of the reforms taking place in the telecom regimes of selected Asian countries and of the commitments these countries made in the recent GATS negotiations. The paper explores the reasons why governments have taken advantage of the GATS negotiations to make multilateral market-opening commitments even though they were not pursuing export interests. The paper also considers the limits to what was achieved by way of liberalization commitments in the negotiations. Allowing greater foreign equity participation without liberalizing the conditions of entry may raise national welfare concerns. Furthermore certain governments could have taken greater advantage of the opportunity under GATS to precommit to future liberalization.
EU Import Measures and the Developing Countries
The EU's import policies towards developing countries are complex stemming from important sectoral and country variations in policy. Average tariffs are modest and while there are tariff peaks and escalation in some areas of interest to developing countries these are being reduced as a result of the implementation of the results of the Uruguay Round. The use of non-tariff measures has fallen particularly as a result of agricultural tariffication and is being further reduced in textiles and clothing. The elimination of VERs has not led to an increase in the use of alternative measures. Contingency protection falls more heavily in chemicals iron and steel certain textile items and certain electrical consumer goods and on Asian Central and Eastern European and former Soviet Union countries. The operation of various factors appears to be working to mitigate the use of trade defence measures in recent years helping to counter pressures that seem likely to arise as liberalization proceeds.
Regulatory Autonomy and Multilateral Disciplines
A major challenge for the multilateral trading system is to secure the benefits of trade liberalization without infringing on the freedom of governments to pursue legitimate domestic objectives. The difficulty lies in distinguishing between two types of situations. In one a non-protectionist government cannot prevent certain domestic policies from incidentally discriminating against foreign competitors. In the other a protectionist government uses a legitimate objective as an excuse to design domestic policies which inhibit foreign competition. The challenge is to devise rules which are sensitive to the difference between these two situations exonerating the former while preventing the latter. The approach suggested in this paper is to create a presumption in favour of the economically efficient policy measure with departures inviting justification.