About the WTO
Reassessing Effective Protection Rates in a Trade in Tasks Perspective
With international trade moving from "trade in (final) goods" to "trade in tasks" effective protection rates (EPRs) are back to the stage allowing us to measure the overall protection of a product or sector by including the production structure and the origin of the inputs -domestic or imported. Input-output matrices are used in this paper to monitor the production structure of 10 Asian-Pacific countries between 1995 and 2005 and to calculate sectorial EPRs. The paper proposes a series of counter-factual simulation methods aimed at isolating the specific contribution of changes in tariff policies in production structure or in real exchange rates. Working on international input output matrices allowed also to compute and compare the average propagation length of a cost-push linked to a sudden change in tariff duties identifying those sectors that are the most deeply interconnected both in the intensity and in the length of their inter-industrial foreign relationships.
The GATS Turns Ten: A Preliminary Stocktaking
The paper discusses the experience to date with the implementation and application of the General Agreement on Trade in Services (GATS) some ten years after its entry into force. One striking observation is the smooth functioning of the Agreement which has created far less tensions and frictions including at Ministerial Meetings than its difficult negotiating history might have suggested. This is due in large part to a high degree of flexibility at several levels: Members have more scope than under the GATT to depart from common horizontal obligations in particular the MFN principle; they are able to adjust the breadth and depth of their trade commitments (market access and national treatment) to particular sector conditions; and they face less constraints if any in the use of trade-related policies such as subsidies export restrictions or domestic regulatory interventions. An additional source of flexibility is the uncertainty still surrounding a few core concepts of the Agreement and their sometimes daring application in individual schedules. While the ongoing negotiations also provide an opportunity for technical corrections of scheduling problems the basic (built-in) flexibility elements of the Agreement - including the bottom-up approach of undertaking sector commitments and the possibility of inscribing limitations under individual modes - will of course persist. (Their actual relevance may nevertheless differ significantly between 'old' Members and countries negotiating their accession to the WTO.) Given the broad reach of of the Agreement in terms of membership sector application and modal coverage flexibility may be considered a conditio sine qua non. There is little reason to believe that a more rigid structure would have been acceptable to Uruguay Round participants and even if so that it would have proven stable and resilient over time. However flexibility may come at a cost: lack of meaningful obligations across a reasonably broad range of service sectors. Vested interests may find it far easier than under the GATT to defend their privileges and defy more rational and harmonized trading conditions. While the paper discusses formula-based approaches that have been proposed to improve the quantity and/or quality of sector commitments within the existing framework of GATS there should be no illusion about the scope for technical solutions to what constitutes a political and institutional challenge.
Revisiting Growth Accounting From a Trade in Value-Added Perspective
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.
Trade Issues Affecting Disaster Response
The frequency severity and economic impact of natural disasters are growing. Import surges resulting from disaster-response efforts can highlight underlying structural failings in the border clearance regimes of disaster-affected countries.
The WTO's TPR Coverage of SPS Systems in Sub-Saharan Africa
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.
Georgia's Post-Accession Structural Reform Challenges
The process leading to WTO accession is complex requires solid domestic coordination mechanisms in the acceding country a rethinking of its economic and trade policies and significant domestic structural reforms. It often implies the creation of new institutions designed to coordinate and implement the policies at the national level as was the case in Georgia.
Lessons Learned and Challenges Ahead for the WTO Trade Monitoring Exercise
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.
The Interface between the Trade and Climate Change Regimes
As governments increasingly adopt policies to reduce greenhouse gas emissions concern has grown on two fronts. First carbon leakage can occur when mitigation policies are not the same across countries and producers seek to locate in jurisdictions where production costs are least affected by emission constraints. The risk of carbon leakage raises questions about the efficacy of climate change policies in a global sense. Secondly it is precisely the cost-related consequences of differential mitigation policies that feed industry concerns about competitiveness. We thus have a link between environmental and competitiveness perspectives that fuses climate change and trade regimes in potentially problematic ways as governments contemplate trade actions to manage the environmental and/or competitiveness consequences of differential climate change policies. On the trade side of this relationship we have the reality that the GATT/WTO rules were not originally drafted to accommodate climate change policies and concerns. The purpose of this paper is to analyze the relevance of certain WTO rules to the interface between climate change and trade focusing in particular on border measures technical regulations on trade standards and labelling and subsidies and countervailing duties. It concludes that in the absence of clear international understandings on how to manage the climate change and trade interface we run the risk of a clash that compromises the effectiveness of climate change policies as well as the potential gains from specialization through trade.
Environmental Quality Provision and Eco-Labelling
This paper is a literature survey of some relevant issues arising from environmental quality provision and eco-labelling schemes. First of all it is shown how the two topics are strictly related. Firms adopting a production process (or producing a good) more environmentally friendly than others (environmental quality provision aspect) may want to make it public (eco-labelling aspect). The survey addresses the question of optimal environmental quality provision (also as a policy tool) and firms compliance. With regard to eco-labelling its impacts on market structure are analysed. It hasn’t been possible to consider all issues like for example that of moral hazard in providing non truthful information. Different issues related to trade are also analysed even if the literature is not abundant on this yet. In the literature both aspects of environmental quality provision and eco-labelling are analysed using product differentiation models. The usual result is that multiple equilibria arise depending also on the parameters. Models are also not robust to different assumptions. Environmental quality provision and eco-labelling are also compared to more traditional policy instruments like taxes (or subsidies) and standards. From the empirical evidence it can be concluded that information plays a crucial role both for consumers’ and producers’ decisions. Consumers are willing to pay a higher price to be informed about the greenness of a good and a label can really be a determinant in their choice of which brand to purchase. On the supply side disclosing information about the environmental performance of a firm can affect investment decisions and its stock value.
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.
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.
The Application of Competition Policy Vis-À-Vis Intellectual Property Rights
This paper examines the evolution of national competition (antitrust) policies and enforcement approaches vis-à-vis intellectual property rights (IPRs) and associated anti-competitive practices in major jurisdictions over the past several decades. It focuses especially on the underlying process of economic learning that has the authors suggest driven relevant policy changes.
Services and Global Value Chains
This paper analyses the role of services in international trade through the lens of global value chains (GVCs). Services account for more than 70% of world GDP but only for around 20% of world trade in balance of payments terms. In value added terms accounting for services embodied in exported goods services account for 40% of world trade. Services industries increasingly produce in networked or "fragmented" arrangements. The paper lays out conceptual and measurement issues related to services networks and provides evidence based on trade in value added statistics and on a case study on the film industry. In contrast to goods value chains services networks appear less fragmented internationally based on trade in value added statistics and survey evidence. However to better capture the international services fragmentation advances in statistics by enterprise characteristics and by mode of supply i.e. taking into account the movement of labour and capital are required.
Trade Policy Uncertainty as Barrier to Trade
This paper studies the effects of trade policy uncertainty on the extensive and the intensive margins of trade for a sample of 149 exporters at the HS6 digit level. We measure trade policy uncertainty as the gap between binding tariff commitments under trade agreements (multilateral and regional agreements) and applied tariffs- what is also known as tariffs’ water. Our results show that trade policy uncertainty is an important barrier to export. On average the elimination of water increases the probability of exporting by 12 percent. A one percent decrease of water also increases export volumes by one percent. We also find that the negative impact of trade policy uncertainty is higher for countries with low quality of institutions and in the presence of global value chains. Finally our findings show that on average trade policy uncertainty is equivalent to a level of tariffs between 1.7 and 8.7 percentage points.
Using Supply Chain Analysis to Examine the Costs of Non-Tariff Measures (NTMs) and the Benefits of Trade Facilitation
It has become increasingly common to produce goods in a number of geographically dispersed stages linked by international trade. This tendency known by names such as “production fragmentation” “processing trade” and “vertical specialization” has important implications for the analysis of non-tariff measures (NTMs) and trade facilitation. First different types of NTMs or trade facilitation issues are naturally associated with different stages in the movement of goods. Different price gaps can be assigned to these stages making it possible to decompose the overall amount of distortion and to prioritize the policies with the largest potential efficiency gains. Second NTMs may accumulate in long supply chains implying that their trade-distorting effects are greater for goods produced in a fragmented manner than for goods with simple production processes. There is evidence that trade costs are more important for high technology goods or goods undergoing several stages of processing. Issues with product standards may be particularly important for goods with long supply chains. The link between NTMs and supply chains also has implications for economic development and for the relationship between liberalization in services and goods.
The Impact of Disasters on International Trade
In this paper we examine the impact of major disasters on international trade flows using a gravity model. Our panel data consists of more than 170 countries for the years 1962-2004 yielding approximately 300000 observations. We find that the driving forces determining the impact of such events are the democracy level and to a lesser extent the area of the affected country. The less democratic and the smaller a country the more are its trade flows reduced in case it is struck by a disaster. We are also able to distinguish between the effect of a disaster on an importing and an exporting country.
International Regulation and Treatment of Trade Finance
The paper discusses a number of issues related to the treatment of trade credit internationally a priori (treatment by banking regulators) and a posteriori (treatment by debtors and creditors in the case of default) which are currently of interest to the trade finance community in particular the traditional providers of trade credit and guarantees such as banks export credit agencies regional development banks and multilateral agencies. The paper does not deal with the specific issue of regulation of official insured-export credit under the OECD Arrangement which is a specific matter left out of this analysis. Traditionally trade finance has received preferred treatment on the part of national and international regulators as well as by international financial agencies in the treatment of trade finance claims on grounds that trade finance was one of the safest most collateralized and selfliquidating forms of trade finance. Preferred treatment of trade finance also reflects the systemic importance of trade as in sovereign or private defaults a priority is to "treat" expeditiously trade lines of credits to allow for such credit to be restored and trade to flow again. It is not only a matter of urgency for essential imports to be financed but also a pre-condition for economic recovery as the resumption of trade is necessary for ailing countries to restore balance of payments equilibrium. The relatively favourable treatment received by trade finance was reflected in the moderate rate of capitalization for cross-border trade credit in the form of letters of credit and similar securitized instruments under the Basel I regulatory framework put in place in the late 1980s and early 1990s. However as the banking and regulatory communities moved towards internal-rating based and risk-weighted assets systems under the successor Basel II framework a number of complaints emerged with respect to the treatment of trade credit – particularly in periods of crisis. Issues of pro-cyclicality maturity structure and country risk have been discussed at some length in various fora including in the WTO at the initiative of Members. Part of the issue was that Basel II regulation was designed and implemented in a manner that in periods of banking retrenchment seemed to have affected the supply of trade credit more than other potentially more risky forms of lending. With the collapse of trade in late 2008 and early 2009 the regulatory treatment of trade credit under Basel II clearly became an issue and was discussed by professional banking organizations regulators and international financial institutions. A sentence made its headway into the communiqué of G-20 Leaders in London in April 2009 calling upon regulators to exercise some flexibility in the application of Basel II rules in support of trade finance. As the issue of removing the obstacles to the supply of trade finance spread became part of the public debate discussions with respect to the regulatory treatment of trade finance in the context of the making of "Basel III" rules are now raising political attention. Part of the underlying problem regarding the design of regulation of trade finance is that banking regulators may not have enough understanding of the way that trade and trade finance operate in practice. In turn the banking community has made insufficient progress in explaining these issues to regulators and in providing evidence about the high level of safety and soundness of their activity in collecting statistical information and even in defining clearly what comprises trade finance. This paper aims at clarifying such issues. The WTO in its role as an "honest broker" is trying to help the parties concerned and has been asked from time to time to act as a go-between between the two communities in order to clarify issues. Section 1 looks at the overall Basel framework and its evolution over time with particular emphasis on the regulation of trade finance. Section 2 looks at issues raised in the WTO context by the trading and trade finance communities be it by WTO Members or by experts and how this has helped to clarify some of the disputed issues. Section 3 raises a number of questions which need clarification from the trade finance community for regulators to be able to better capture the reality of trade finance operations and allow them to regulate with full understanding of its implications.
Public Services and the GATS
The status of public services is one of the most hotly debated issues surrounding the GATS. There are two approaches to distinguish such services from any other services: an institutional approach that focuses on the legal and institutional conditions governing supply (e.g. ownership status market organisation) and a functional approach based on the policy objectives that may be involved (e.g. distributional and quality-related considerations concepts of universal access). Given the wide range of institutional arrangements that exist in different jurisdictions with significant variations over time the former approach does not appear appropriate. The services provided by government-owned facilities whose costs are covered directly by the State may well be indistinguishable for all practical purposes from the services provided by private commercial operators whose users (students patients passengers etc.) are reimbursed. This paper discusses the relevance of the GATS for different organisational settings - from government monopolies to regulated and/or subsidized private provision - that may be used by WTO Members to meet typical public service objectives. It turns out that virtually all forms of organisation can be accommodated within the framework of the Agreement. To fully exploit its opportunities and avoid unpleasant surprises however governments would need to thoroughly analyse the relevant provisions in the light of their own policy objectives.
The WTO Global Trade Model
This document provides a technical description of the WTO Global Trade Model developed by the Center for Global Trade Analysis (GTAP) and the World Trade Organization (WTO). The model can be used to generate global trade projections and to assess the medium and long run effects of a wide range of global and national trade policies.
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.