About the WTO
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.
The Long and Winding Road
The paper chronicles the negotiating history of the recently concluded Trade Facilitation Accord. Analysing the various stages of the decade-long effort to get the Agreement off the ground it examines what was at stake in the negotiations how they evolved and why they finally succeeded - despite many obstacles and detours along the way. The study also suggests ways in which the exercise has broken new ground – for Trade Facilitation rule-making at the global level for how WTO Members negotiate agreements and for the world trading system as a whole.
Mercosur
MERCOSUR is one of the most important examples of renewed world-wide interest in regional trade agreements. It may be seen as a consolidation of unilateral reforms undertaken in conjunction with major macroeconomic adjustments. The paper reviews the objectives of MERCOSUR and assesses its achievements focusing on institutions and fulfilment of commitments. It concludes that considerable progress has been made to achieving a customs union and even beyond that towards a common (but not EU-style single) market but there are a number of areas where progress is still to be made.
Trade in Healthcare and Health Insurance Services
The General Agreement on Trade in Services (GATS) is broader in policy coverage than conventional trade agreements for goods and at the same time offers governments more flexibility in various dimensions to tailor their obligations to sector- or country-specific needs. An overview of existing commitments on healthcare and health insurance services shows that WTO Members have made abundant use of these possibilities. While most participants elected not to undertake bindings on healthcare services at the end of the Uruguay Round nor to make offers in the ongoing negotiations insurance services have been among the most frequently committed sectors. If there is a common denominator regardless of the Members concerned (except for recently acceded countries) it is the existence of a lot of 'water' between existing commitments and more open conditions of actual access in many sectors. This may also explain in part why there have been very few trade disputes under the GATS to date - far fewer than under the GATT in merchandise trade. Also governments appear to be generally hesitant in politically and socially sensitive areas to take action in the WTO. There are indications however that the same 'players' have acted differently in other policy contexts. For example it appears that under recent preferential trade agreements (PTAs) the European Communities has been even more cautious in committing on hospital services and protecting scope for (discriminatory) subsidies than under the GATS. Yet this is not necessarily true for the obligations assumed by many countries including individual EC Member States under bilateral investment treaties (BITs). These treaties overlap with the GATS as far as commercial presence is concerned and may be used by aggrieved investors to challenge policy restrictions in host countries. However though frequently invoked BITs do not meet the same standards in terms of transparency open (consensual) rulemaking and legal certainty as commitments under the GATS.
International Supply Chains and Trade Elasticity in Times of Global Crisis
The paper investigates the role of global supply chains in explaining the trade collapse of 2008-2009 and the long-term variations observed in trade elasticity. Building on the empirical results obtained from a subset of input-output matrices and the exploratory analysis of a large and diversified sample of countries a formal model is specified to measure the respective short-term and long-term dynamics of trade elasticity. The model is then used to formally probe the role of vertical integration in explaining changes in trade elasticity. Aggregated results on long-term trade elasticity tend to support the hypothesis that world economy has undertaken in the late 1980s a “traverse” between two underlying economic models. During this transition the expansion of international supply chains determined an apparent increase in trade elasticity. Two supply chains related effects (the composition and the bullwhip effects) explain also the overshooting of trade elasticity that occurred during the 2008-2009 trade collapse. But vertical specialization is unable to explain the heterogeneity observed on a country and sectoral level indicating that other contributive factors may also have been at work to explain the diversity of the observed results.
Trade Costs in the Global Economy
Proper measurement and aggregation of trade costs is of paramount importance for sound academic and policy analysis of the determinants - particularly those of policy - of economic outcomes. The international trade profession has witnessed signifcant new developments both on the theoretical and on the empirical side concerning the measurement and decomposition of such costs into variable and fixed costs on the one hand and into partial and general equilibrium effects on the other hand.
Trade and Deforestation
Forest plays a significant role in the overall balance of carbon in the atmosphere. Forest carbon sequestration can potentially reduce the accumulation of greenhouse gases in the atmosphere. However when deforestation takes place carbon is released to the atmosphere again. Globally it has been estimated that about 11% to 39% of all carbon emissions from human origin come from the forest sector (Hao et al. 1990). Regarding global warming the balance between forest conservation and deforestation can change forest sector activities from a solution to a problem and vice versa.
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.
The Value of Domestic Subsidy Rules in Trade Agreements
This paper investigates the efficient design of rules on domestic subsidies in a trade agreement. A clear trade-off emerges from the economic literature. Weak rules may lead Member governments to inefficiently use domestic subsidies for redistributive purposes or to lower market access granted to trading partners once tariffs are bound. On the other hand excessive rigidity may inhibit tariff negotiations or induce governments to set inefficiently high tariffs as strict regulations would reduce policy makers' ability to use subsidies to offset domestic market distortions. Efficient subsidy rules are therefore the ones that strike the right balance between policy flexibility and rigidity. This economic approach provides a framework to interpret the provisions on domestic subsidies in the WTO.
Trade Finance in Periods of Crisis
This paper reviews a number of initiatives taken by public and private institutions aimed at minimizing the impact of the on-going crisis of the financial sector on its ability to supply trade finance to support trade at affordable rates. In doing so it draws a few policy lessons. One of them is that a relatively stable segment of the financial industry is now regularly hit by the contagion of financial crises with potentially very harmful spill-overs on global trade through a dry up of its financing. Specific policy measures to restore confidence in this otherwise safe market required a good level of coherence and dialogue between national governments and international and regional development organizations. Lessons from the Asian and Latin American financial crises of the late 1990's have been learned and academia provided input by developing understanding on a previously under-rated topic in the literature. Learning-by-doing and leadership have also been features of the policy response which altogether had some successes. Still longer-term challenges remain such as addressing the structural gaps in the availability of trade finance in low-income countries - ad hoc programs have been designed to fill the gap between the perceived and actual risk of extending trade credit to traders in these countries. Moreover regulation of the trade finance market needs to continue to take into account its low-risk character the absence of leverage and its impact on development.
Reducing Trade Costs in LDCs: The Role of Aid for Trade
This study analyses the role of Aid for Trade in reducing trade costs in least developed countries (LDCs). The analysis builds on questionnaires and case stories submitted as part of the Aid-for-Trade monitoring and evaluation exercise for the Fifth Global Review of Aid for Trade. Trade costs are high in LDCs and constitute a major impediment to their participation in international trade. The most important sources of trade costs in LDCs are inadequate transport infrastructure cumbersome border procedures and compliance with non-tariff measures for merchandise exports. In the case of LDC services exports major drivers of trade costs include ICT networks poor regulation low skill levels the recognition of professional qualifications and restrictions on the movement of natural persons. LDCs are well aware of the issue of high trade costs which is addressed by more than 90% of LDCs in their national strategies. Trade facilitation is the top Aid-for-Trade priority for LDCs which is also reflected in increasing Aid-for-Trade flows. The analysis of questionnaires case stories diagnostic trade integration studies and existing econometric work illustrates the important role played by Aid-for-Trade interventions in lowering trade costs in LDCs.
The Determinants of Quality Specialization
A growing literature suggests that high-income countries export high-quality goods. Two hypotheses may explain such specialization with different implications for welfare inequality and trade policy. Fajgelbaum Grossman and Helpman (JPE -2011-) formalize the Linder (1961) conjecture that home demand determines the pattern of specialization and therefore predict that high-income locations export high-quality products. The factor-proportions model also predicts that skill-abundant high-income locations export skill-intensive high-quality products (Schott QJE 2004). Prior empirical evidence does not separate these explanations. I develop a model that nests both hypotheses and employ microdata on US manufacturing plants’ shipments and factor inputs to quantify the two mechanisms’ roles in quality specialization across US cities. Home-market demand explains at least as much of the relationship between income and quality as differences in factor usage.
New Evidence on Preference Utilization
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 1500.
Typology of Environment-Related Provisions in Regional Trade Agreements
The last 25 years have witnessed a rapid increase in regional trade agreements (RTAs). Although RTAs generally aim at lowering tariff and non-tariff trade barriers an increasing number of trade agreements extend their scope to cover specific policy areas such as environmental protection and sustainable development. This paper establishes a comprehensive typology and quantitative analysis of environment-related provisions included in RTAs. The analysis covers all the RTAs currently into force that have been notified to the WTO between 1957 and May 2016 namely 270 trade agreements. While environmental exceptions along with environmental cooperation continue to be the most common types of environment-related provisions many other different types of provisions are incorporated in an increasing number of RTAs. The common feature of all environment-related provisions including environmental exceptions is their heterogeneity in terms of structure language and scope.
The Relation between International Trade and Freshwater Scarcity
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.
Revisiting Trade and Development Nexus
The rapid rise in global fragmentation — foreign investment global supply chains and ‘production sharing — is fundamentally reshaping the multilateral trading system. This paper uses a simple economic modeling framework to understand how the global fragmentation phenomenon may reshape the WTO and particularly its developing country members that are most affected by the rise in global production sharing and foreign direct investment. The paper argues that the surge in global production sharing supply chain agreements and investment has not only recast the role of existing GATT/WTO rules but that these same forces also create a strong rationale for new multilateral disciplines pertaining to investment incentives and other ‘behind-the-border’ policies.
International Trade and Real Transmission Channels of Financial Shocks in Globalized Production Networks
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.
The Revised WTO Agreement on Government Procurement (GPA)
The WTO's plurilateral Agreement on Government Procurement ("the GPA" or "the Agreement") is an important ongoing success story for the Organization. In March 2012 the GPA Parties completed a comprehensive revision of the Agreement encompassing both its text and coverage (market access commitments). The revised GPA the negotiating processes that led to its adoption and coming into force and the continuing gradual broadening of its membership are of therefore interest for the evolution of the international trading system. The GPA's successful renegotiation the continuing growth of its membership and its vitality as an instrument of public policy were not achieved through happenstance. The paper discusses a number of specific design features of the GPA that clearly facilitated the successful conclusion of the renegotiation and that as such may in the future be relevant to other areas of global trade liberalization. In addition to the Agreement's plurilateral nature of particular interest are the approach taken with respect to application of the most-favored-nation (MFN) principle in the Agreement; the GPA's continuing strong emphasis on principles of reciprocity in market access concessions; and its approach to special and differential treatment for developing countries in all of which it differs from approaches that are widely used in other WTO Agreements. Apart from the above the GPA revision is important for the merging of trade and good governance concerns that it exemplifies. As discussed in the paper the themes of governance and the sound management of public resources that are treated in the revised Agreement were not afterthoughts to the renegotiation; rather they permeated the revised text and received focused attention from the Parties in their own right. As well the GPA has direct implications for investment policy and for domestic economic reforms and is an important tool of e-commerce. And the revision has made possible very significant synergies between the GPA and other international instruments and activities in reducing barriers to participation and strengthening governance in public procurement markets. For all these reasons the revised Agreement is likely to have a wider impact than meets the eye and well merits the support and attention that it has received from the participating WTO Member governments.
National Environmental Policies and Multilateral Trade Rules
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.
Non-Reciprocal Preference Erosion Arising from MFN Liberalitzation in Agriculture
This paper estimates the risk of preference erosion for non-reciprocal preference recipients in the agricultural sector as a consequence of MFN tariff cuts. It is based on a simulation of a single tariff-cutting scenario. The measure of preference erosion risk is the difference in preference margins enjoyed by individual suppliers to the QUAD (Canada EU Japan United States) markets before and after a MFN tariff reduction multiplied by the associated trade flow. The paper does not attempt to determine how losses in preference margins translate into trade outcomes but it does highlight which products and which non-reciprocal preference beneficiaries are the most vulnerable to erosion effects in the major developed country markets. Overall the paper finds that the risk of preference erosion is small but some countries are strongly affected in particular product lines (notably sugar and bananas).