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International Rules for Trade in Natural Resources
This paper investigates the scope for international rules to address market failures in trade in natural resources and the associated international transactions of prospecting and investment in resource exploitation. We argue that several market failures are likely to have substantial costs. However due to the distinctive features of natural resources the market failures are particular to them. The ad hoc approaches which have attempted to address them to date leave scope for a more systematic and comprehensive approach by the WTO but the distinctive features of natural resources imply that this could not simply be an application of the rules appropriate for other forms of trade.
The Value of Bindings
One of the goals of the multilateral trading system is to enhance the stability and predictability of the environment in which traders operate. Binding tariffs at the WTO reduces the scope for their discretionary use. But countries have bound tariffs at ceiling levels often substantially above the level of applied tariffs. Therefore whether the ceiling rate at which countries have committed at the WTO is sufficient to diminish trade policy volatility is an empirical question. Using a recently built database on applied tariffs covering over 100 countries for the period 1996 to 2009 we find evidence that countries do vary tariffs. We find evidence that applied tariffs of tariff lines that are bound are more likely to be decreased and less likely to be increased and that this “taming” effect of the binding decreases with the level of the water (i.e. the gap between bound and applied tariff). This finding is robust to controlling for political economy determinants of tariffs and to factors related to the economic cycle.
Lessons from the First Two Decades of Trade Policy Reviews in the Americas
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.
Infrastructure Provision and Africa’s Trade and Development Prospects
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.
Trade in Mineral Resources
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.
What Constrains Africa's Exports?
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.
Fiscal Policy Cycles and the Exchange Regime in Developing Countries
The paper studies empirically fiscal policies around elections in 25 developing countries as affected by the exchange regime. It is argued that countries with flexible exchange regimes are less likely to engage in expansionary fiscal policies before elections because such policies can result in devaluations and inflation which affects government popularity adversely. The empirical results show that governments indeed try to improve their re-election prospects with the help of expansionary fiscal policies only in countries with fixed exchange rates and adequate reserve levels. For some countries this raises doubts about the usefulness of fixed exchange rates for stabilizing the macro economy unless reforms of the institutional framework reduce the scope for election-oriented fiscal expansion.
Trade in Tasks, Tariff Policy and Effective Protection Rates
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.
E-commerce and Developing Country-SME Participation in Global Value Chains
Two far-reaching developments have increased the trade opportunities for SMEs in developing countries. Firstly the rise of the internet and advances in ICT have reduced trade-related information and communication costs. Secondly the international fragmentation of production has increased the opportunities for SMEs to specialize in narrow activities at various stages along the production chain.
Investment Policies and Telecommunications Regimes
The revolution in the telecommunication industry of recent years raises a number of interesting economic questions with significant policy implications. One of these questions is the extent to which foreign investments in the telecommunication industry is accompanied by policies that are conducive to cross–border investments. These policies can be both domestic and international. The discussion in this paper is limited to the latter by concentrating on the role of the WTO and other international agreements. The purpose of the paper is to evaluate the GATS/Telecom Agreement. This is done by looking at the guiding principles for negotiating market access for foreign investors by comparing the Agreement with the Telecom Agreement under NAFTA and by discussing the merits of the multilateral approach to negotiating foreign investment in the telecommunication sector. The WTO GATS/Telecom Agreement comes out rather well from this evaluation exercise.
The Long and Winding Road
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.
Mercosur
MERCOSUR is one of the most important examples of renewed world-wide interest in regional trade agreements. It may be seen as a consolidation of unilateral reforms undertaken in conjunction with major macroeconomic adjustments. The paper reviews the objectives of MERCOSUR and assesses its achievements focusing on institutions and fulfilment of commitments. It concludes that considerable progress has been made to achieving a customs union and even beyond that towards a common (but not EU-style single) market but there are a number of areas where progress is still to be made.
Trade in Healthcare and Health Insurance Services
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.
International Supply Chains and Trade Elasticity in Times of Global Crisis
The paper investigates the role of global supply chains in explaining the trade collapse of 2008-2009 and the long-term variations observed in trade elasticity. Building on the empirical results obtained from a subset of input-output matrices and the exploratory analysis of a large and diversified sample of countries a formal model is specified to measure the respective short-term and long-term dynamics of trade elasticity. The model is then used to formally probe the role of vertical integration in explaining changes in trade elasticity. Aggregated results on long-term trade elasticity tend to support the hypothesis that world economy has undertaken in the late 1980s a “traverse” between two underlying economic models. During this transition the expansion of international supply chains determined an apparent increase in trade elasticity. Two supply chains related effects (the composition and the bullwhip effects) explain also the overshooting of trade elasticity that occurred during the 2008-2009 trade collapse. But vertical specialization is unable to explain the heterogeneity observed on a country and sectoral level indicating that other contributive factors may also have been at work to explain the diversity of the observed results.
Trade Costs in the Global Economy
Proper measurement and aggregation of trade costs is of paramount importance for sound academic and policy analysis of the determinants - particularly those of policy - of economic outcomes. The international trade profession has witnessed signifcant new developments both on the theoretical and on the empirical side concerning the measurement and decomposition of such costs into variable and fixed costs on the one hand and into partial and general equilibrium effects on the other hand.
Trade and Deforestation
Forest plays a significant role in the overall balance of carbon in the atmosphere. Forest carbon sequestration can potentially reduce the accumulation of greenhouse gases in the atmosphere. However when deforestation takes place carbon is released to the atmosphere again. Globally it has been estimated that about 11% to 39% of all carbon emissions from human origin come from the forest sector (Hao et al. 1990). Regarding global warming the balance between forest conservation and deforestation can change forest sector activities from a solution to a problem and vice versa.
Why are Trade Agreements more Attractive in the Presence of Foreign Direct Investment?
This paper argues that interests of nationals and owners of home-based foreign capital in the formation of a Trade Agreements (TA) are not antagonistic except under rather particular assumptions on initial tariffs among potential members. Further if initial tariffs are endogenously determined through an industry-lobbying process then TA that would have been immiserising in the absence of Foreign Direct Investment (FDI) may be welfare-enhancing in the presence of foreign-owned firms. The rationale is linked to the effect that the entry of FDI has on the pre-TA tariff through contributions to the incumbent government. These results may help explain recent integration programs between developed and developing countries.
The Value of Domestic Subsidy Rules in Trade Agreements
This paper investigates the efficient design of rules on domestic subsidies in a trade agreement. A clear trade-off emerges from the economic literature. Weak rules may lead Member governments to inefficiently use domestic subsidies for redistributive purposes or to lower market access granted to trading partners once tariffs are bound. On the other hand excessive rigidity may inhibit tariff negotiations or induce governments to set inefficiently high tariffs as strict regulations would reduce policy makers' ability to use subsidies to offset domestic market distortions. Efficient subsidy rules are therefore the ones that strike the right balance between policy flexibility and rigidity. This economic approach provides a framework to interpret the provisions on domestic subsidies in the WTO.
Trade Finance in Periods of Crisis
This paper reviews a number of initiatives taken by public and private institutions aimed at minimizing the impact of the on-going crisis of the financial sector on its ability to supply trade finance to support trade at affordable rates. In doing so it draws a few policy lessons. One of them is that a relatively stable segment of the financial industry is now regularly hit by the contagion of financial crises with potentially very harmful spill-overs on global trade through a dry up of its financing. Specific policy measures to restore confidence in this otherwise safe market required a good level of coherence and dialogue between national governments and international and regional development organizations. Lessons from the Asian and Latin American financial crises of the late 1990's have been learned and academia provided input by developing understanding on a previously under-rated topic in the literature. Learning-by-doing and leadership have also been features of the policy response which altogether had some successes. Still longer-term challenges remain such as addressing the structural gaps in the availability of trade finance in low-income countries - ad hoc programs have been designed to fill the gap between the perceived and actual risk of extending trade credit to traders in these countries. Moreover regulation of the trade finance market needs to continue to take into account its low-risk character the absence of leverage and its impact on development.
Reducing Trade Costs in LDCs: The Role of Aid for Trade
This study analyses the role of Aid for Trade in reducing trade costs in least developed countries (LDCs). The analysis builds on questionnaires and case stories submitted as part of the Aid-for-Trade monitoring and evaluation exercise for the Fifth Global Review of Aid for Trade. Trade costs are high in LDCs and constitute a major impediment to their participation in international trade. The most important sources of trade costs in LDCs are inadequate transport infrastructure cumbersome border procedures and compliance with non-tariff measures for merchandise exports. In the case of LDC services exports major drivers of trade costs include ICT networks poor regulation low skill levels the recognition of professional qualifications and restrictions on the movement of natural persons. LDCs are well aware of the issue of high trade costs which is addressed by more than 90% of LDCs in their national strategies. Trade facilitation is the top Aid-for-Trade priority for LDCs which is also reflected in increasing Aid-for-Trade flows. The analysis of questionnaires case stories diagnostic trade integration studies and existing econometric work illustrates the important role played by Aid-for-Trade interventions in lowering trade costs in LDCs.