WTO Working Papers

This paper assesses the impact of the 2005 multilateral Hong Kong Ministerial decision on duty free quota free (DFQF) market access for products originating in Least developed countries (LDCs) on the latter's export performance. The analysis is conducted over a sample of 41 LDCs, with data spanning the period 1998-2013. The empirical analysis examines both the average effect and the short term/medium term effect. Results indicate that on average, this multilateral decision has exerted a positive effect on LDCs' performance on merchandise exports, with this average positive effect being solely driven by a positive effect on LDCs' export performance on primary products; the average effect on manufacturing exports has been statistically nil. In the short and medium term, this decision has exerted a positive effect on LDCs' merchandise export performance, as well as on the components of the latter, namely both primary product exports and manufacturing exports. However, the positive effect on primary product exports appears to be far higher than that on manufacturing exports. These findings have important policy implications regarding reflections on the way LDCs could utilize their policy flexibilities in the WTO Agreements to diversify their exports away from the primary sector and toward manufacturing and/or services sector.

The unbundling of trade across regions offers unique opportunities for SMEs to integrate into global trade notably through their involvement into supply-chains. With supplychains shifting and expanding into new regions of the world, the challenge for SMEs to accessing financing remains an important one; in many developing and emerging market economies, the capacity of the local financial sector to support new traders is limited. Moreover, after the financial crisis, several global banks have "retrenched", for various reasons. In this context, supply-chain finance arrangements, and other alternative forms of financing such as through factoring, have proven increasingly popular among traders. This paper shows that factoring has a positive effect in allowing SMEs to access international trade, in countries in which it is available. Factoring also appears to be employed by firms involved in global supply chains. We employ for the first time data on factoring from Factor Chain International (FCI), the most extensive dataset on factoring available at the moment, for the period of 2008-2015. Using an instrumentation strategy we identify a strong, stable effect of factoring on SMEs access to capital for some of the main traders in the world.

The average international trade transaction is subject to numerous procedural and documentation requirements, which add to the costs of doing business as an importer or exporter and also use up scarce government resources. While these requirements can be necessary to fulfil policy objectives, questions are often raised about why and how they are implemented. The Trade Facilitation Agreement (TFA), adopted by WTO Members in 2014, seeks to expedite the movement, release and clearance of goods across borders and reduce these trade transaction costs - by an average of 14.3 per cent as estimated by the 2015 World Trade Report. At the same time, many WTO Agreements already contain provisions aimed at facilitating trade procedures and avoiding unnecessary costs. The Agreement on Technical Barriers to Trade (the TBT Agreement) is one of these: its provisions on transparency and conformity assessment procedures, some of which are applied at the border, are of particular relevance in this context. The TFA and TBT Agreements are in fact complementary, with the TFA introducing some new requirements/recommendations, which are likely to apply to certain TBT measures. This paper maps out the linkages between these two Agreements. It does so with a view to informing TBT officials of the requirements and best practices emerging in the trade facilitation area as well as raising awareness amongst trade/customs officials of existing rules and evolving practices in the TBT area. The 2015 World Trade Report refers to “border agency cooperation” as the main TFA implementation challenge identified by developing countries and also points to the importance of cooperation and coordination between ministries as one of the main success factors. Considering that a significant share of import/export procedures and controls arise from the implementation of TBT measures, a better understanding of the linkages between the TFA and the TBT Agreement (as well as other relevant WTO Agreements such as the SPS Agreement) will be crucial for effective implementation. It will also contribute to more streamlined technical assistance activities and raise awareness among TBT officials of the opportunities generated by trade facilitation projects. The procedures and practices of the WTO TBT Committee, especially with regards to transparency and specific trade concerns, could also be of interest to the future TFA Committee, as it embarks on its task of furthering the implementation of the TFA. All these in turn will help reap the expected benefits of the new Trade Facilitation Agreement.

The GATS does not offer a definition of "services", but services need to be identified and classified for the operation of the Agreement, especially for the scheduling of specific commitments on market access and national treatment. There is no obligation on WTO Members to use any particular classification system in undertaking commitments. Nevertheless, an informal document produced for the services negotiation during the Uruguay Round, the Services Sectoral Classification List (W/120), was used and continues to be used as the principal guiding classification system, not only in the WTO, but also in bilateral and plurilateral services trade negotiations outside of the WTO. WTO jurisprudence has also noted the role of W/120 in the determination of sectoral coverage of GATS commitments. However, services classification does not receive enough attention it deserves. This paper attempts to make contribution by providing an overview of services classification and highlighting its relevance to both trade negotiations and WTO dispute settlement. It consists of four sections. Section I reviews how a services classification system was introduced into the multilateral trading system and describes the main features of W120. Section II takes a closer look at some aspects of the classification system, drawing attention to challenges in its application, which arise from inter alia services with multiple end-uses, overlaps between sectors, and the issue of "new services". Section III considers the implications of classification on GATS commitments by examining a number of WTO dispute settlement cases. Section IV concludes. In conclusion, the paper underlines the importance of services classification in assisting governments in clearly and accurately undertaking commitments. It also notes that WTO Members have taken or suggested various pragmatic approaches to addressing challenges in the application of the current services classification system. The proposed approaches again highlight the role of classification in ensuring the clarity, certainty and predictability of specific commitments in services.

This paper investigates whether TBT provisions included in RTAs differ from those under the WTO TBT Agreement, and, if they do, whether they entail broader commitments. Our analysis covers 238 RTAs, of which 171 include at least one provision, and focuses on the provisions on technical regulations, conformity assessment procedures, transparency, dispute settlement, marking and labelling and sector-specific commitments. We find that all RTAs signed since 2010 systematically include TBT provisions and that the most frequent provisions are those referring to the TBT Agreement and transparency. Moreover, even if there are RTAs that include new or broader commitments than the TBT Agreement, our study shows that their number remains very limited. For instance, relatively few RTAs have included provisions to better implement WTO provisions in the area of transparency or provisions requiring the equivalence or harmonization of technical regulations among the parties or even the recognition of conformity assessment results. RTAs with a dispute settlement provision that applies exclusively to TBT issues are also very few. These RTAs give in general exclusive jurisdiction to the WTO DSM over TBT related disputes. Finally, also only a minority of RTAs include provisions on new issues such as marking and labelling or sector-specific provisions, typically for electric and electronic products, pharmaceuticals or vehicles.

In 2003, the WTO General Council decided to provide an additional legal pathway for WTO Members with insufficient or no manufacturing capacities in the pharmaceutical sector to access medicines. Two years later, in 2005, WTO Members unanimously agreed to give this mechanism, often referred to as the "Paragraph 6 System", a permanent legal status when they adopted the Protocol Amending the TRIPS Agreement. The implementation and use of the additional pro-public health flexibilities provided by the System is optional, not mandatory. To take advantage of them, as of July 2015, 51 WTO Members have adopted specific implementing measures with a variable degree of detail and complexity which incorporate the Paragraph 6 System in their respective legal frameworks and provide the basis for them to act either as exporter or as importers, or as both. This represents almost a third of the WTO Membership, and the predominant bulk of existing pharmaceutical exporters. Given that, unlike other flexibilities in the TRIPS Agreement, the Paragraph 6 System was devised as a new mechanism without previous domestic experience to draw upon, there seems to be an exceptional need for an in-depth discussion of how it has been implemented at country level to which this paper attempts to respond. There is, indeed, often limited knowledge in the policy and procurement communities about the wide range of specific measures that have been introduced in many major exporters of medicines and the importance of this information both from a practical point of view, to facilitate exports of needed medicines, and from a policy point of view, to understand the implementation of this novel tool for access to medicines. To contribute to a better understanding of how the System has been implemented in practice, this paper surveys domestic measures that WTO Members have put in place. By doing so, it can inform the broader dialogue about access to medicines and provide practical information for procurement programmes. It can also put a valuable source of information and inspiration at the disposal of those Members who are yet in the process of considering whether and how best to implement the Paragraph 6 System in their domestic legal framework. While the survey illustrates that a robust framework supportive of the export of generic medicines to meet public health needs has been put in place by a significant number of WTO Members, there is an obvious need to move a step forward and engage in a substantive review of the System, including if and how better, more frequent use could be made of it. To conclude, the paper therefore offers some elements for reflection regarding the way forward in order to support the functioning of the Paragraph 6 System.

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.

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.

The WTO’s plurilateral Information Technology Agreement (ITA) reduced tariffs to zero on many IT products. This paper presents a comprehensive study of its trade impacts by incorporating recent insights from both the global value chain (GVC) and time in trade literatures. Inserting tariffs directly into the gravity equation breaks the ITAs impact down into four layers. Import demand elasticities are found to be non-linear: Tariff reduction (layer 1) has relatively small impacts, while complete tariff elimination (layer 2) has high impacts, especially for intermediate goods. Beyond that, ITA accession has positive non-tariff effects on both imports (layer 3) and exports (layer 4). These commitment effects suggest that higher trade policy certainty affects investment and sourcing decisions in favour of signatories: Their ITA exports performed better relative to other ICT and machinery exports, unlike non-members. But “passive signatories” – which joined mainly as a by-product of a larger policy objective – reaped the most benefits. Featuring a smaller ITA sector upon accession, their final good exports increased also in absolute terms due to downstream GVC integration. However, such impacts are strongly heterogeneous with respect to countries’ geographical remoteness, education levels, business environment and institutions. China stands out with especially strong post-accession export increases, also extending to intermediate goods.

Albeit nominal tariffs have been decreasing in the past decades, the rise of global manufacturing along global value chains lead to their accumulation along the international supply chain. The calculation of effective protection rates provides important insights on the impact of nominal protection on the international competitiveness of industries in a trade in tasks perspective. Building on the results of the OECD-WTO Trade in Value-Added TiVAdatabase, the paper analyses the evolution of effective protection in about 50 developed and developing countries from 1995 to 2008. The paper reviews also the role of preferential agreements on effective protection as well as the impact of tariffs on the production costs of services. A final chapter is dedicated to exploring the underlying patterns that may exist beyond the EPR profiles.