WTO Working Papers

Transitioning from the post-2008 financial meltdown to a sustained period of global growth and prosperity involves a major challenge: how to ensure the effective management of international economic interdependence. Trade, growth, good governance and sustainable development constitute essential ingredients to any solution, as is a fairer distribution of the gains of trade. Two issues stand out in this conversation. The first concerns the unfinished business of the global fight against the scourge of poverty, which impacts one region more than most: Africa. At the same time, a key pre-requisite for economic performance - affordable and efficient public infrastructure and services – remains lacking in this region – notably, in Sub-Saharan Africa. To address this, the region itself has initiated a major, long-term, continent-wide infrastructure development programme which is intended to fix this problem sustainably - namely, the Programme for Infrastructure Development in Africa (PIDA). Its success foreshadows an economic transformation that will potentially usher in an emergent Africa in the 21st century. Secondly, in one area of economic activity – trade in government procurement markets - the revised WTO Agreement on Government Procurement (GPA) is emerging as a multi-dimensional tool of trade, governance and development. The thesis of this paper is that GPA participation by African countries - a prospect which, to date, they have declined to take up - holds strong potential to reinforce the positive effects of PIDA and to contribute to the region's growth and development more generally. Developing this thesis, the paper examines the possible application of the GPA to support Africa's infrastructure programme, drawing on its three dimensions of instrument of governance, market access instrument, and 'policy space' instrument in support of the development, financial and trade needs of developing countries. Based on the analysis, the paper concludes that the potential benefits outweigh the potential costs of participation in the GPA by African countries, and, accordingly, that the GPA merits consideration by the region in this regard. A successful implementation of the infrastructure programme also portends a significant expansion in the size of the African government procurement market. Were African countries to accede to the Agreement in this context, it would constitute not only a big rise in membership numbers, but also a significant expansion in the value of market access under the Agreement. The broad outlines of a potential win-win scenario for both African countries and GPA Parties thus begin to emerge. The paper, nonetheless, acknowledges that delivering these benefits would involve significant practical and political challenges. It concludes that if the challenges can be overcome and the mutual benefits delivered, the revised GPA would have been demonstrated as an effective tool for balancing flexibility and reciprocity in the government procurement sector, consistent with sustainable development principles, with the capability to deliver win-win benefits for a broad range of stakeholders, in the post-2015 era.

We examine in this paper the impact of the tightening of IPRs, notably patents rights, and the adoption of utility model laws on export diversification. To perform our analysis, we used panel data covering 89 developing and developed countries (of which 55 developing countries) over the period 1975 – 2003, and Lewbel (-2012-)'s instrumental variable technique. Our results lead us to conclude that for developing countries, legal protection for minor and adaptive inventions could be a springboard for further strengthening of IPRs protection in spurring export diversification, which is essential for the structural change needed for their economic development.

Bangladesh's international image is not as a popular tourism destination, and many people might be surprised to learn it has three World Heritage sites, including the Sundarbans tiger reserves. Moreover, it is part of important travel circuits for cultural and religious tourism, and has demonstrated potential for sports tourism. The objective of this working paper is to critically test the assertion that pro-poor "green" tourism is one of the best development options for the majority of least developed countries (LDCs) -- a challenging task in Bangladesh in the face of the country's success as an exporter of readymade garments -- by comparing tourism to the available alternatives with regard to the crucial government priorities of export diversification, employment generation and the "green economy". It is well-known that Bangladesh is under strong pressure to diversify its exports, to generate new employment (especially in rural areas), and to respond to critical environmental issues. The government has identified over 30 "thrust sectors" (including tourism) to help address these challenges, but otherwise tourism is rarely mentioned as a major trade and development option for Bangladesh. Within the limitations of data availability, this working paper reaches the conclusion that greater efforts to develop "green" tourism would be highly beneficial for facilitating rural development, environmental and cultural protection, gender equality, and export diversification in services. The most obvious current impediments are inadequate infrastructure, lack of investment and (typically election year) political conflict, but behind these factors appear to be a serious lack of stakeholder coordination, insufficient regulatory and administrative transparency and coherence, as well as some government reluctance to relinquish greater commercial autonomy in tourism to the private sector. This paper offers extensive analysis and some suggestions to help address the impediments, including the recommendation to create a Bangladesh Tourism Stakeholders Forum.

Most international commerce is carried out by multinational firms, which use their foreign affiliates for the majority of their foreign sales. In this paper, I examine the determinants of multinational firms’ location and production decisions and the welfare implications of multinational production. The few existing quantitative general equilibrium models that incorporate multinational firms achieve tractability by assuming away export platforms – i.e. they do not allow foreign affiliates of multinationals to export – or by ignoring fixed costs associated with foreign investment. I develop a quantifiable multi-country general equilibrium model, which tractably handles multinational firms that engage in export platform sales and that face fixed costs of foreign investment. I first estimate the model using German firm-level data to uncover the size and nature of costs of multinational enterprise and show that fixed costs of foreign investment are large. Second, I calibrate the model to data on trade and multinational production for twelve European and North American countries. Counterfactual results reveal that multinationals play an important role in transmitting technological improvements to foreign countries as they can jump the barriers to international trade; I find that a twenty percent increase in the productivity of US firms leads to welfare gains in foreign countries an order of magnitude larger than in a world in which multinational production is disallowed. I demonstrate the usefulness of the model for current policy analysis by studying the pending Canada-EU trade and investment agreement; I find that a twenty percent drop in the barriers to foreign production between the signatories would divert about seven percent of the production of EU multinationals from the US to Canada.

How do information frictions distort international trade? This paper exploits a unique historical experiment to estimate the magnitude of these distortions: the establishment of the transatlantic telegraph connection in 1866. I use a newly collected data set based on historical newspaper records that provides daily data on information flows across the Atlantic together with detailed, daily information on prices and trade flows of cotton. Information frictions result in large and volatile deviations from the Law of One Price. What is more, the elimination of information frictions has real effects: Exports respond to information about foreign demand shocks. Average trade flows increase after the telegraph and become more volatile, providing a more efficient response to demand shocks. I build a model of international trade that can explain the empirical evidence. In the model, exporters use the latest news about a foreign market to forecast expected selling prices when their exports arrive at the destination Their forecast error is smaller and less volatile the more recent the available information. I estimate the welfare gains from information transmission through the telegraph to be roughly equivalent to those from abolishing a 6% ad valorem tariff.

The United Nations' post--2015- development agenda is taking shape. Like its predecessor the Millennium Development Goals, the post--2015- agenda will reshape development policy priorities for governments and non-governmental actors alike, in many cases galvanising new attention, thinking, and financing to tackle the priorities it identifies. This essay reviews the historical and ongoing role played by trade in sustained high growth and human development progress, and makes the case that the post--2015- development agenda should include considerations related to trade rules and supply-side capacity. Given the strong links between trade-led growth, economic upgrading, and poverty reduction, the paper argues that trade led economic growth must be prioritised in the post--2015- development agenda.

The paper builds a typology of value-added traders according to their economic and trade policy characteristics. In the process, it defines clusters of countries according to the multidimensional criteria defined by value-added, economic and trade policy indicators. A second approach focuses on the relationships existing between the variables themselves, using multicriteria and graph analysis. Natural resources endowments, on the one hand, and services orientation, on the other one, are among the most determinant variables for defining Trade in Value Added (TiVA) clusters. The level of economic development remains a crucial determinant of the TiVA profile as is the size of the economy, even if not as important as initially expected. Proactive GVC up-grading strategies, such as investments in ICT and R&D tend to foster a higher foreign content in exports, compensating the lower domestic margin by higher volumes. Inwardoriented protectionist policies are not particularly successful in exporting higher share of domestic content, except in services exports; but in this case, export volumes remain marginal.

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.

We argue that the trend toward international investment agreements (IIAs) with stricter investment rules is driven by competitive diffusion, namely defensive moves of developing countries concerned about foreign direct investment (FDI) diversion in favor of competing host countries. Accounting for spatial dependence in the formation of bilateral investment treaties (BITs) and preferential trade agreements (PTAs) that contain investment provisions, we find that the increase in agreements with stricter provisions on investor-state dispute settlement and pre-establishment national treatment is a contagious process. Specifically, a developing country is more likely to sign an agreement with weak investment provisions if other developing countries that compete for FDI from the same developed country have previously signed agreements with similarly weak provisions. Conversely, contagion in agreements with strong provisions exclusively derives from agreements with strong provisions that other FDI-competing developing countries have previously signed with a specific developed source country of FDI.

Trade finance, particularly in the form of short-term, self-liquidating letters of credit and the like, has received relatively favourable treatment regarding capital adequacy and liquidity under Basel III, the new international prudential framework. However, concerns have been expressed over the potential” unintended consequences” of applying the newly created leverage ratio to these instruments, notably for developing countries’ trade. This paper offers a relatively simple model approach showing the conditions under which the initially proposed 100% leverage tax on non-leveraged activities such as letters of credit would reduce their natural attractiveness relative to higher-risk, less collateralized assets, which may stand in the balance sheet of banks. Under these conditions, the model shows that leverage ratio may nullify in part the effect of the low capital ratio that is commensurate to the low risk of such instruments. The decision by the Basel committee on 12 January 2014 to reduce the leverage ratio seems to be justified by the analytical framework developed in this paper.