WTO Working Papers

Since the conclusion of the Uruguay Round in 1994 and the creation of the WTO in 1995, the functioning of the multilateral trading system has been the focus of a considerable number of articles, proposals and debates. With the exception of a few important initiatives on transparency and decisionmaking, most contributions on the functioning of the WTO have been made by external observers of the WTO. However, over the past two years, an increasing number of Members have showed interest in systemic and institutional issues. This interest has to a large extent been generated by a concern about the role of the multilateral trading system in the overall international economic environment, particularly in light of the current global financial crisis. At the same time, the WTO as an institution is under considerable pressure following more than a decade of efforts to conclude the Doha Round of trade negotiations. This paper explores the possibility of establishing a Working Party on the Functioning of the WTO as a separate, deliberative process in the WTO. It seeks to outline the advantages of creating an informal forum or space for discussion among WTO Members and argues that many WTO Members appear to be ready for a broad discussion of institutional and systemic challenges facing the multilateral trading system.

This paper examines the history of regional integration in Africa, what has motivated it, the different initiatives that African governments have pursued, the nature of the integration process, and the current challenges. Regional integration is seen as a rational response to the difficulties faced by a continent with many small national markets and landlocked countries. As a result, African governments have concluded a very large number of regional integration arrangements, several of which have significant membership overlap. While characterized by ambitious targets, they have a dismally poor implementation record. Part of the problem may lie in the paradigm of linear market integration, marked by stepwise integration of goods, labour and capital markets, and eventually monetary and fiscal integration. This tends to focus on border measures such as the import tariff. However, supply-side constraints may be more important. A deeper integration agenda that includes services, investment, competition policy and other behind-the-border issues can address the national-level supply-side constraints far more effectively than an agenda which focuses almost exclusively on border measures.

This Working Paper contains some observations concerning the evolution of trade and trade-related policies in the Asia-Pacific region since the establishment in 1989 of the Trade Policy Review Mechanism (TPRM), whose goal is to improve the transparency of these policies. It also draws some lessons from the Reviews undertaken. In particular, the Paper examines how reforms, either unilateral or in connection with bilateral, regional or multilateral trade agreements, can be greatly facilitated by transparency, including cost-benefit (C-B) analyses of policies and measures that take full account not just of the interests of domestic producers, but also those of other groups, including exporters and domestic consumers. While high quality transparency is not cheap, the costs of achieving it pale in comparison with the financial assistance involved and efficiency losses associated with such assistance. Trade Policy Reviews (TPRs) throw light not only on measures that appear to contravene WTO rules, although that is not their purpose; more importantly, they identify measures not seemingly covered by WTO rules, which can, nonetheless, have economic effects equivalent to measures that are subject to these rules. One of the main lessons from these TPRs is that impediments to economic development are largely homegrown. Consequently, unilateral structural reform, of which liberalization of both trade and foreign direct investment (FDI) has been an integral part, is of paramount importance. By fostering transparency, particularly evaluating the effectiveness of policies and measures in achieving their objectives and their overall impacts (intended or unintended) on the economy, the TPRM can be a catalyst for unilateral reform, including liberalization of trade and FDI. Although the latter has received added impetus from multilateral liberalization under the auspices of the GATT/WTO, the stalling of negotiations in connection with the Doha Development Agenda (DDA) should not preclude further unilateral liberalization. By contrast, the benefits of preferential trade agreements are far from obvious, notwithstanding their proliferation during the past decade throughout the Asia-Pacific region, here few governments have subjected these agreements to rigorous cost-benefit analysis. Economies in the Asia-Pacific region, especially East Asia, have been much more successful than those in other regions in achieving sustained fast growth, and thereby raising living standards and reducing poverty. This success can be attributed not so much to transparency, which is largely lacking, but to, inter alia, their broad outward-looking development strategy. This strategy has involved in particular an increasingly high degree of integration into the global economy with heavy reliance on growth of manufactured exports, high rates of national saving to finance high rates of domestic investment, including public investment in physical and social infrastructure (notably education and health), supplemented by FDI (as well as maintenance of macroeconomic stability, reliance on a functioning market system to allocate resources, and committed, capable and credible governments). However, this development strategy has left growth very heavily dependent on domestic investment and exports, which dropped sharply in the wake of the global financial crisis that erupted in 2008. This, and resulting current account imbalances, and consequent trade tension, has prompted a rethink in a number of East Asian economies of their development strategies. As a consequence, China, Chinese Taipei, Korea and Malaysia, for example, are now attempting to wean their economies off investment and exports and give freer rein to domestic consumption. As circumstances (including comparative advantage) change, and global resources become increasingly scarce, policies need to be continually reviewed in order to ensure that second-best measures are replaced by more cost-effectiveness ones. As improved productivity is the key to sustained development in the long run, policies need to be adapted to ensure that they facilitate, rather than inhibit, the efficient re-allocation of resources by markets in accordance with evolving comparative advantage. Reform needs to be ongoing, therefore. Transparency builds support for, and thus paves the way for, such reform.

Since 1990 the number of preferential trade agreements (PTAs) has increased very rapidly. This paper aims to contribute to this literature by presenting a new database on PTAs called Design of Trade Agreements (DESTA). We identified a total of 690 negotiated trade agreements between 1945 and 2009 of which we have coded 404 agreements for which treaty texts and appendices were available. We aim to have a database for about 550 agreements by 2012. We have coded agreements for a total of 10 broad sectors of cooperation, encompassing market access, services, investments, intellectual property rights, competition, public procurement, standards, trade remedies, non-trade issues, and dispute settlement. For each of these sectors, we have coded a significant number of items, meaning that we have about 100 data points for each agreement. The resulting DESTA database is – to the best of our knowledge – by far the most complete in terms of agreements and sectors covered. This dataset fills a crucial gap in the field by providing a fine-grain measurement of the design of PTAs. Among others, we think that DESTA will be of relevance for the literatures on the signing of PTAs; the legalization of international relations; the rational design of international institutions; the diffusion of policies; the political and economic effects of trade agreements; power relations between states; and forum shopping in international politics. This working paper describes the DESTA data set and provides selected descriptive statistics. The overview puts emphasis on variation in design over time and across regions.

This paper weaves several sets of facts into an argument that: 1) today’s trade is radically more complex, involving a “trade-investment-service nexus”, 2) this 21st century trade demanded deeper disciplines which were supplied by “21st century regionalism” while the WTO was otherwise occupied, and 3) 21st century regionalism has quite different implications for the world trading system than the traditional thinking suggests. The paper also argues that the traditional thinking (building-stumbling-block and Vinerian economics) is not up to the job of analysing 21st century regionalism. An alternative framework is not provided, but elements a new approach should encompass are discussed.

When looking at the conditions of trade in natural resources the world appears upside down: tariff protection in natural resources sectors is generally lower than for overall merchandise trade, while export restrictions are twice as likely as in other sectors. On the other hand, tariff escalation is significant in natural resources sectors, where materials in their raw state face, on average, lower duties than in their processed form. In this paper, we discuss how export taxes and tariff escalation may be the result of an uncooperative trade policy. Specifically, tariff escalation and export taxes can be "beggar-thy-neighbor" policies because governments may be tempted to use them to alter the relative price of exports to their advantage (terms-of-trade effect) or to expand the domestic processing industry at the expenses of foreign production (production relocation effect). In equilibrium, these policies offset each other in a Prisoners' Dilemma situation, where trade is inefficiently low.

The creation of the General Agreement on Trade in Services (GATS), in the Uruguay Round, and its entry into force in 1995 marked a new stage in the history of the multilateral system. It was motivated essentially by the rapid expansion of international services trade within an increasingly open environment in many countries. Given the peculiarities of services trade, including the intangible nature of the products concerned and the need for direct contact between supplier and user in many cases, the Agreement contains a variety of conceptual innovations, including its extension to modes of supply beyond conventional cross-border trade (consumption abroad, commercial presence, and presence of natural persons) and its coverage, and legitimization, of various types of non-tariff restrictions. In turn, the new concepts needed time to be absorbed by the ministries and agencies involved in services trade. Further, the positive-list, or bottom-up, approach to scheduling trade commitments under the GATS meant that great flexibility was given to Members in selecting the sectors concerned and specifying the levels of access provided under individual modes. Thus, not surprisingly, the schedules that emerged from the Uruguay Round, which still account for the majority of current commitments, contain a variety of unclear or superfluous entries that may cause interpretation problems. Their solution could contribute significantly to the clarity and comparability of access obligations across sectors and WTO Members. The scheduling conventions agreed for the Doha Round thus provide specifically for the possibility of technical refinements that leave the substance of commitments unchanged. However, not only was this possibility used more sparingly to date than might have been expected, but additional flaws would be introduced if some current offers were to enter into effect. The following discussion, with a focus on a particular group of entries (market access via commercial presence), tries to explain the scope for such refinements and develop a clearer picture of the areas where further action might be needed.

We propose a theoretical framework for analyzing the problems associated to unilateral immigration policy in receiving countries and for evaluating the grounds for reform of international institutions governing immigration. We build a model with multiple destination countries and show that immigration policy in one country is influenced by measures adopted abroad as migrants choose where to locate (in part) in response to differences in immigration policy. This interdependence gives rise to a leakage effect of immigration policy, an international externality well documented in the empirical literature. In this environment, immigration policy becomes strategic and unilateral behavior may lead to coordination failures, where receiving countries are stuck in welfare inferior equilibria. We then study the conditions under which a coordination failure is more likely to emerge and argue that multilateral institutions that help receiving countries make immigration policy commitments would address this inefficiency.

The Trade Policy Reviews conducted in the Western Hemisphere over 1989-2009 contain a wealth of information that puts in clear evidence the considerable improvements achieved in most American countries during the first two decades of operation of the Trade Policy Review Mechanism. Those Reviews show that trade liberalization came hand-in-hand with internal reforms, and was generally of an autonomous nature and an intrinsic component of improved economic management. Trade liberalization slowed down during the second decade under review, with tariffs having come down mostly during the earlier years. The use of non-tariff barriers also fell over time although at a slow pace in some of the smallest Members, which found it difficult to implement the more complex trade policy instrument applied by larger countries. Export and other government assistance schemes proliferated throughout the continent but were often characterized by a lack of unity in the criteria used to assign and apply them. The review period also witnessed enormous changes in the services sectors, where reforms usually proved more complex than in the goods area. The multilateral and other international trade agreements contributed to the stability of trade policies and the general rejection of protectionism, although backtracking did occur in a number of cases. Because the commitments made during the Uruguay Round negotiation now fall short of the more liberal trade regimes that came to be over the review period, most Members in the Americas could presently raise trade and investment barriers without violating multilateral rules. Thus, the pressing need to conclude the Doha Development Agenda in order to lock in the considerable trade policy liberalization achieved during past years, and to strengthen the multilateral trading system.

The previous literature provides a highly ambiguous picture on the impact of trade and investment agreements on FDI. Most empirical studies ignore the actual content of BITs and RTAs, treating them as "black boxes", despite the diversity of investment provisions constituting the essence of these agreements. We overcome this serious limitation by analyzing the impact of modalities on the admission of FDI and dispute settlement mechanisms in both RTAs and BITs on bilateral FDI flows between 1978 and 2004. We find that FDI reacts positively to RTAs only if they offer liberal admission rules. Dispute settlement provisions play a minor role. While RTAs without strong investment provisions may even discourage FDI, the reactions to BITs are less discriminate with foreign investors responding favourably to the mere existence of BITs.