Economic research and trade policy analysis

Subsidies are one of many policy instruments subject to rules in the multilateral trading system but they present more complex issues for policy-makers than many other instruments subject to GATT /WTO rules. One reason for this is that subsidies can be defined in different ways. Another is that that they are used in pursuit of a wide array of objectives. Even where they are not aimed at trade they can affect trade flows. The kinds of subsidies of primary concern to this Report are those that impart an advantage to some domestic producers and thereby affect trade. The challenging task of determining which sorts of subsidies are problematic from the perspective of the trading system and what might be done about them has occupied an important place on the agenda of the WTO /GATT system.

International trade in services is governed principally by regulatory measures. Unlike trade in goods border measures in the form of tariffs and quotas are not the main barriers to trade. This peculiarity of services trade is due to the manner by which services are produced and consumed. Due to the intangible and non-storable nature of services suppliers and consumers often have to be in physical proximity to each other for the transaction to be completed. For this reason economists have traditionally considered services to be non-tradable across borders and have paid little attention to it in trade theory.

This chapter addresses a number of concerns associated with state trading. What are the applicable WTO rules in this area and have they kept up with the evolving nature of production methods and the changing landscape of state trading enterprises (STEs)? How have state trading practices been approached in WTO accession negotiations? How many WTO members acceding under the provisions of Article XII of the Marrakesh Agreement Establishing the World Trade Organization (WTO Agreement) have accepted specific obligations aimed at disciplining the operations of STEs? What specific patterns have emerged across these commitments and how have they evolved over time? Have the commitments resulting from WTO accession negotiations offered a more effective and forward-looking approach to disciplining STE activities? What is the systemic relevance of STE-related accession commitments and what lessons can be drawn about possible future multilateral disciplines in this area? What has been the contribution of accession commitments relating to transparency in privatisation programmes? STE disciplines have been in the rulebook of the multilateral trading system since 1947 but have not kept track with the evolving nature of state trading operations. State trading plays a significant role in the economies of the majority of Article XII members. The applicability of existing WTO rules in this area has therefore been put to practice in their accession negotiations. The commitments resulting from accession negotiations have produced more comprehensive and forward-looking disciplines which arguably capture modern-day state trading operations more adequately. Specifically STE-related accession commitments have evolved over time to extend the scope of obligations to the purchases and sales of both goods and services contribute further definitional clarity to the term ‘state trading enterprise’ and address the transparency deficit in this area. In addition to steering the operations of acceding governments’ STEs towards conformity with WTO principles the evolution of these commitments is of systemic relevance to the multilateral trading system as it points to the possible direction of future disciplines in this area. While not pre-judging the future development of multilateral provisions on state trading it is argued that Article XII members which today account for one-fifth of the WTO membership are well placed to influence the direction of future discussions in the area of STEs.

Le commerce international fait partie intégrante du processus de mondialisation. Depuis de nombreuses années la plupart des pays ouvrent de plus en plus leur économie au commerce international que ce soit dans le cadre du système commercial multilatéral d’une coopération régionale accrue ou de programmes de réformes internes. Plus généralement le commerce international et la mondialisation ont apporté des avantages considérables à nombre de pays et à leurs citoyens. Le commerce a permis aux pays de tirer parti de la spécialisation et des économies d’échelle pour produire de manière plus efficiente. Il a entraîné des gains de productivité favorisé la diffusion des connaissances et des technologies nouvelles et élargi le choix des consommateurs. Mais l’intégration plus poussée dans l’économie mondiale n’a pas toujours été bien accueillie et les avantages du commerce et de la mondialisation n’ont pas toujours profité à tous les segments de la société. On observe dans certains milieux un scepticisme croissant à l’égard du commerce; d’où le thème du Rapport sur le commerce mondial de cette année à savoir «Le commerce à l’heure de la mondialisation» qui vise à rappeler ce que nous savons des gains tirés du commerce international et des défis liés à une intégration plus poussée.

Over recent decades the global economy has experienced a profound transformation mostly as a result of the joint forces of trade integration and technological progress combined with important political changes. There is no doubt that this transformation has been accompanied by significant positive effects at the global level. Increased trade integration has helped to raise incomes in advanced and developing economies lifting millions out of poverty. Since the global financial crisis of 2007–08 however trade productivity and income growth have decelerated partly because of a slowdown in the pace of trade reforms fuelled by a change in attitudes towards globalization and trade.

Regionalism emerged as a global policy concern during the Uruguay Round of multilateral trade negotiations towards the end of the 1980s. Before then it had comfortably co-existed alongside the multilateral trading system. The stability of the system hinged strongly on the leadership that the US had provided since the early days of the GATT until the late 1980s. It was only when the US turned to regionalism that the edifice of the multilateral system began to experience tremors and regionalism started becoming a threat to the functioning and credibility of the multilateral trading system. The stumbling block/building block metaphor widely credited to the Columbia University scholar Jagdish Bhagwati reflected the anxiety that the rapid spread of regionalism caused.

Preferential trade agreements (PTAs) continue to proliferate. Always a central element of the trade policy strategy of European countries ‘regionalism’ has now become the dominant form of international cooperation on trade policy for virtually all the members of the WTO developed and developing. The proliferation of PTAs has been accompanied by steadily declining barriers to trade generally and high growth rates in world trade. The uniform tariff equivalent of all applied most favoured nation tariffs of high-income OECD countries in 2005 was 4.8 per cent. Excluding agricultural products the figure drops to 2.7 per cent (Kee Nicita and Olarreaga 2008). For the developing countries the focus of this chapter applied MFN tariffs have also fallen substantially; Kee et al. estimate that the median average overall trade restrictiveness index was 7.5 per cent for the fifty-seven countries for which data are available in 2005 compared with 12.3 per cent ten years earlier. This reduction in external MFN protection reflects mostly unilateral autonomous actions by governments (Martin and Messerlin 2007). While PTAs can be building blocks or stumbling blocks for multilateral liberalization it is incontrovertible that the level of MFN trade barriers has been falling.

The COVID-19 pandemic highlights a paradox: globalization has created a world that is both more vulnerable and more resilient to crises. On the one hand economic integration makes us more dependent on far-flung trade networks and more exposed to cascading risks and shocks. On the other hand economic integration also allows us to diversify suppliers pool resources and share information and expertise. The same features that make the global economy susceptible to crises – openness interdependence networked technologies – also make it adaptable innovative and better able to withstand crises when they hit. Strengthening trade by making it more diversified inclusive and cooperative is also central to making the global economy more resilient to current and future crises from pandemics to climate change.