WTO Working Papers

In spite of their growing importance in international trade as well as in bilateral and multilateral trade negotiations, services have only attracted limited attention from researchers interested in determinants of trade policies and trade cooperation. This paper seeks to account for countries' varying levels of market access commitments under the multilateral General Agreement on Trade in Services (GATS). I develop an argument suggesting how levels of democracy and factor endowments are associated with more commitments. The empirical analysis supports these propositions, and also suggests that relative size, as well as regulatory capacity, are positively linked to GATS commitments.

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.

We examine the effects of transit, documentation, and ports and customs delays on Africa’s exports. We find that transit delays have the most economically and statically significant effect on exports. A one day reduction in inland travel times leads to a 7 percent increase in exports. Put another way, a one day reduction in inland travel times translates into 1.5 percentage point decrease in all importing-country tariffs. In contrast, longer delays in the other areas have a far smaller impact on trade. We control for the possibility that greater trade leads to shorter delays in three ways. First, we examine the effect of trade times on exports of new products. Second, we evaluate the effect of delays in a transit country on the exports of landlocked countries. Third, we examine whether delays affect time-sensitive goods relatively more. We show that large transit delays are relatively more harmful because of high within-country variation.

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.

In this report we first give a brief overview of trade in seafood and seafood production. We then review the basic bioeconomic theory of the fishery and pinpoint why fisheries are different from most other industries. We next review the theoretical literature on trade and renewable resources that shows how unconventional outcomes from trade liberalization can emerge. Given this background, we discuss the most important policy issues in relation to seafood and trade, including sections on managing the global commons and domestic trends in management. In the final section, we discuss specific issues that are germane to the WTO and its rules.

This paper provides a review of current thinking on the economics of international trade in mineral resources. There is not a great deal written on this topic, and so my review is necessarily broad rather than deep. In some cases I am only able to cite related and even tangential literature. I first define what is meant by trade in mineral resources. I then discuss patterns of trade in mineral resources. The paper then moves on to the five topics requested by the World Trade Organization: theoretical and empirical literature on international trade in minerals; trade impacts of mineral abundance and the resource curse; the political economy of mineral trade in resource-abundant states; non-economic considerations associated with strategic mineral resources; and the impact of domestic market structure and regulation on production and trade in minerals.

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.

Tariff water –the difference between bound and applied duties– provides relevant information on domestic trade policy and WTO trade negotiations. This paper examines the general and sectoral tariff structure of 120 economies, using exploratory data analysis.

We consider the purpose and design of the World Trade Organization (WTO) and its predecessor, GATT. We review recent developments in the relevant theoretical and empirical literature. And we describe the GATT/WTO architecture and briefly trace its historical antecedents. We suggest that the existing literature provides a useful framework for understanding and interpreting central features of the design and practice of the GATT/WTO, and we identify key unresolved issues.

I propose a framework within which to interpret and evaluate the major reforms introduced to the GATT system in its transition to the WTO. In particular, I examine the WTO Agreement on Safeguards that has replaced the GATT escape clause (Article XIX), and the Dispute Settlement Process (DSP) that resembles a court of law under the WTO. Using this framework, I interpret the weakening of the reciprocity principle under the Agreement on Safeguards as an attempt to reduce efficiency-reducing trade skirmishes. The DSP is interpreted as an impartial arbitrator that announces its opinion about the state of the world when a dispute arises among member countries. I demonstrate that the reforms in the GATT escape clause should be bundled with the introduction of the DSP, in order to maintain the incentive-compatibility of trade agreements. The model implies that trade agreements under the WTO lead to fewer trade skirmishes but this effect does not necessarily result in higher payoffs to the governments. The model also implies that the introduction of the WTO court, which has no enforcement power, can in fact improve the self-enforceability of trade agreements.