About the WTO
Exporting under Trade Policy Uncertainty
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.
Services Liberalization from a WTO/GATS Perspective: In Search of Volunteers
There has been virtually no liberalization under the General Agreement on Trade in Services (GATS) to date. Most existing commitments are confined to guaranteeing the levels of access that existed in the mid-1990s when the Agreement entered into force in a limited number of sectors. The only significant exceptions are the accession schedules of recent WTO Members and the negotiating results in two sectors (financial services and in particular basic telecommunications) that were achieved after the Uruguay Round. The offers tabled so far in the ongoing Round would not add a lot of substance either. Apparently negotiators are 'caught between a rock and a hard place'. For one thing the traditional mercantilist paradigm relying on reciprocal exchanges of concessions seems to be provide less momentum than in the goods area. For another there are additional - technical economic and political - frictions that tend to render services negotiations more complicated timeconsuming and resource-intensive. The novelty of the Agreement adds an additional element of legal uncertainty from a negotiator's perspective. This paper discusses various options that might help to overcome the ensuing reticence to engage. Few appear within reach at present however. The bare minimum that would need to be achieved is to revive work on scheduling and classification issues with a view to putting both existing commitments and new offers on a safer footing and to improve compliance with long-existing information/notification obligations.
The Economics of Permissible WTO Retaliation
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.
Simulating World Trade in the Decades Ahead
The geography and composition of international trade are changing fast. We link a macroeconomic growth model and sectoral CGE framework in order to project the world economy forward to the year 2035 and assess to what extent current trends in trade are expected to continue. Constructing fully traceable scenarios based on assumptions grounded in the literature we are also able to isolate the relative impact of key economic drivers. We find that the stakes for developing countries are particularly high: The emergence of new players in the world economy intensification of South-South trade and diversification into skill-intensive activities may continue only in a dynamic economic and open trade environment. Current trends towards increased regionalization may be reversed with multilateral trade relationships gaining in importance. Hypothetical mega-regionals could slow down but not frustrate the prevalence of multilateralism. Continuing technological progress is likely to have the biggest impact on future economic developments around the globe. Population dynamics are influential as well: For some countries up-skilling will be crucial for others labour shortages may be addressed through migration. Several developing countries would benefit from increased capital mobility; others will only diversify into dynamic sectors when trade costs are further reduced.
A New Look at the Extensive Trade Margin Effects of Trade Facilitation
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.
Trade, Technology, and Prosperity
Trade and technological change continually alter the workplace and labor-market outcomes with consequences for economy-wide welfare and the distribution of real incomes.
Applied Services Trade Policy
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.
Services Trade Liberalization at the Regional Level
This paper discusses the opportunities and challenges for Southern and Eastern African ACP countries of services negotiations in the context of European Partnership Agreements. The paper provides an overview of existing flows in services from and to Southern and Eastern Africa an overview that suffers from the paucity of relevant data. Given the significant differences among services sectors the paper provides a separate discussion for several of them including financial services tourism and business services. The latest developments in each sector are described and the issues that are at stake in trade negotiations. In this context the competitive position of Southern and Eastern African countries is compared with the position of the European Union and other global players. The paper attempts to identify possible export opportunities for Southern and Eastern African ACP countries and discusses the advantages and disadvantages of giving preferential access to EU suppliers in those services sectors where African countries are likely to import. Particular attention is paid to the role of mode 4 in the discussed services sectors.
Achieving Bangladesh’s Tourism Potential
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.
Social Interactions of Migrants and Trade Outcomes
This paper investigates the social interactions performed by immigrants in France. A framework for immigrant’s choice of location is based on recent studies on non-market interactions which explains how migrants concentrate. Applying data on the distribution of immigrants in 95 French provinces the social interactions are subsequently estimated. This “social component” of migration is then tested on international trade providing a direct measure of the impact of social networks on the economy.
The Evolution of Gender-Related Provisions in Regional Trade Agreements
Regional Trade agreements (RTAs) are sometimes considered as laboratories in which new types of provisions are negotiated to address recent trade-related issues. Although the inclusion of gender-related provisions in RTAs is not a recent phenomenon only a limited but increasing number of RTAs refer explicitly to gender-related issues. These gender-related provisions are highly heterogeneous and differ in terms of location in the RTA language scope and commitments. Some of the most detailed gender-related provisions are found in stand-alone chapters on gender. Cooperation provisions on gender-related issues including labour health and social policy remain the most common type of gender-related provisions found in RTAs.
WTO Rules and Practices for Transparency and Engagement with Civil Society Organizations
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.
A ‘Probabilistic’ Approach to the Use of Econometric Models in Sunset Reviews
Economists have increasingly become involved in trade remedy and litigation matters that call for economic interpretation or quantification. The literature on the use of econometric methods in response to legal requirements of trade policy is rather limited. This article contributes to filling this gap by demonstrating the efficacy of using a simple ‘probabilistic’ model in analyzing the ‘likelihood’ of injury to the local industry concerned following a finding of continuation or recurrence of dumping (or countervailable subsidies). The legal concept of ‘likelihood’ is not only particularly well-suited to illustrate the systemic need for trade lawyers and economists to cooperate. It is also of imminent practical relevance with a groundswell of ‘sunset’ reviews looming on the horizon. We discuss the significance of economic analysis for trade remedy investigations by reviewing the literature the applicable WTO rules and in particular the pertinent case law. The potential value of probabilistic simulations for ‘likelihood’ determinations is exemplified using a real-world application. Using data from past United States International Trade Commission investigations we find that a probabilistic model that takes account of the uncertainty surrounding economic parameters reduces the risk of misjudging the effect on the domestic industry of a termination of trade remedies.
How to Design Trade Agreements in Services
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.
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.
How Regional Trade Agreements Deal with Disputes Concerning their TBT Provisions?
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).
Distance, Formal and Informal Institutions in International Trade
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.
International Standards and the WTO TBT Agreement
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).
Charting the Evolving Landscape of Services Trade Policies
While greater focus has been cast on analysis of policy changes affecting trade in goods in the aftermath of the financial crisis little is known about the direction of policies affecting trade in services. On the basis of information contained in the I-TIP Services database this paper provides an overview of the evolution of services trade policies since 2000 where policy changes – whether towards more liberalization or more protection – tend to be less easily reversible and to have a greater impact. Has protectionism increased in the aftermath of the crisis? Which countries sectors and modes of supply have been associated with most trade facilitating and trade-restrictive measures? The evidence gathered contradicts in many respects basic political economy expectations. Indeed the countries sectors and modes of supply where liberalizing and protectionist measures have been implemented are not necessarily those one would have assumed. Most importantly trade-facilitating measures have clearly outweighed trade-restrictive ones over the recent period including after the onset of the crisis. This strong push towards autonomous liberalization bodes well for trade negotiations on trade in services. The undertaking of greater commitments would bring benefits by consolidating this recent liberalization and by helping to reduce non-negligible outbursts of protectionism that have been witnessed over the last years. However bilateral and plurilateral agreements because of their limited country coverage would only capture a fraction of the recent autonomous liberalization and similarly only help prevent part of the protectionist measures springing up.
Dealing with Monopolies and State Enterprises
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.