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Multilateral Solutions to the Erosion of Non-Reciprocal Preferences in NAMA
This paper analyzes the risks of preference erosion arising from MFN trade liberalization in manufactured products. It focuses on developing countries that receive non-reciprocal preferences in the markets of United States EU Japan Canada and Australia. The paper estimates preference margins as the difference between non-reciprocal preferential rates received by individual countries and the best available (MFN or better-than-MFN) treatment received on average by all other suppliers. Most previous work on this subject has compared the preferential rates for individual countries with MFN rates alone which the paper found to have the effect of over-stating the margin at risk from erosion following MFN reductions. The paper also considers the effect of less than full utilization of preference margins by beneficiaries but a lack of data prevented the inclusion of this additional moderating factor relating to erosion risk. The paper finds that developing countries as a whole do not loose from preference erosion following MFN liberalization although significant gains and losses underlie the estimate of the average. Almost all least-developed countries either lose from preference erosion or are unaffected by it because their exports are already largely MFN duty-free. A large number of LDCs are in the latter group. The main sectors where preference erosion occurs are textiles fish and fish products leather and leather products electrical machinery and wood and wood products. As regards trade solutions to preference erosion options are somewhat limited. Improved utilization rates may help certain countries but certainly do not offer a generalized solution. Limited scope exists for expanding the coverage of preference schemes within the destination markets considered in the paper. Other destination markets might offer some prospect but these are limited by the fact that the markets studied dominate the trade flows of the beneficiary countries.
The evolution of services trade policy since the great recession
Are changes in services markets provoking reform restrictions or inertia? To address this question we draw upon a new World Bank-WTO Services Trade Policy Database (STPD) to analyse the services trade policies of 68 economies in 23 subsectors across five broad areas—financial services telecommunications distribution transportation and professional services respectively.
Evolution of Asia's Outward-Looking Economic Policies
This Working Paper contains some observations concerning the evolution of trade and trade-related policies in the Asia-Pacific region since the establishment in 1989 of the Trade Policy Review Mechanism (TPRM) whose goal is to improve the transparency of these policies. It also draws some lessons from the Reviews undertaken. In particular the Paper examines how reforms either unilateral or in connection with bilateral regional or multilateral trade agreements can be greatly facilitated by transparency including cost-benefit (C-B) analyses of policies and measures that take full account not just of the interests of domestic producers but also those of other groups including exporters and domestic consumers. While high quality transparency is not cheap the costs of achieving it pale in comparison with the financial assistance involved and efficiency losses associated with such assistance. Trade Policy Reviews (TPRs) throw light not only on measures that appear to contravene WTO rules although that is not their purpose; more importantly they identify measures not seemingly covered by WTO rules which can nonetheless have economic effects equivalent to measures that are subject to these rules. One of the main lessons from these TPRs is that impediments to economic development are largely homegrown. Consequently unilateral structural reform of which liberalization of both trade and foreign direct investment (FDI) has been an integral part is of paramount importance. By fostering transparency particularly evaluating the effectiveness of policies and measures in achieving their objectives and their overall impacts (intended or unintended) on the economy the TPRM can be a catalyst for unilateral reform including liberalization of trade and FDI. Although the latter has received added impetus from multilateral liberalization under the auspices of the GATT/WTO the stalling of negotiations in connection with the Doha Development Agenda (DDA) should not preclude further unilateral liberalization. By contrast the benefits of preferential trade agreements are far from obvious notwithstanding their proliferation during the past decade throughout the Asia-Pacific region here few governments have subjected these agreements to rigorous cost-benefit analysis. Economies in the Asia-Pacific region especially East Asia have been much more successful than those in other regions in achieving sustained fast growth and thereby raising living standards and reducing poverty. This success can be attributed not so much to transparency which is largely lacking but to inter alia their broad outward-looking development strategy. This strategy has involved in particular an increasingly high degree of integration into the global economy with heavy reliance on growth of manufactured exports high rates of national saving to finance high rates of domestic investment including public investment in physical and social infrastructure (notably education and health) supplemented by FDI (as well as maintenance of macroeconomic stability reliance on a functioning market system to allocate resources and committed capable and credible governments). However this development strategy has left growth very heavily dependent on domestic investment and exports which dropped sharply in the wake of the global financial crisis that erupted in 2008. This and resulting current account imbalances and consequent trade tension has prompted a rethink in a number of East Asian economies of their development strategies. As a consequence China Chinese Taipei Korea and Malaysia for example are now attempting to wean their economies off investment and exports and give freer rein to domestic consumption. As circumstances (including comparative advantage) change and global resources become increasingly scarce policies need to be continually reviewed in order to ensure that second-best measures are replaced by more cost-effectiveness ones. As improved productivity is the key to sustained development in the long run policies need to be adapted to ensure that they facilitate rather than inhibit the efficient re-allocation of resources by markets in accordance with evolving comparative advantage. Reform needs to be ongoing therefore. Transparency builds support for and thus paves the way for such reform.
Can Trade Policy Help Mobilize Financial Resources for Economic Development?
The linkages between trade and resource mobilization are complex and not well defined in theory. To what extent does trade policy affect resource mobilization and what are the mechanisms? We argue that trade policy is a key factor of influencing the domestic fundamental balance between aggregate savings and investment. The main effect of trade policy on resource mobilization stems from its contribution to static and dynamic gains from trade. But the effect of trade policy on the supply of financial resources also operates through several channels including through linkages of trade policy with foreign investment government revenues income distribution foreign aid. The paper looks at direct and indirect channels and makes a distinction between short and long term effects of different trade strategies. We also briefly review trade barriers in goods and services affecting developing countries and the potential gains from further liberalization. The long term gains from trade liberalization are substantial but they may have to be set against short-term adjustments costs. The latter could and should be reduced by effective institutional and tax reforms.
Mapping of Dispute Settlement Mechanisms in Regional Trade Agreements
Regional trade agreements (RTAs) have become an indelible feature of the international trading landscape. Most if not all RTAs contain provisions that establish procedures for resolving disputes among their signatory members. Yet the design and functioning of these dispute settlement mechanisms (DSMs) and more specifically how they differ from the WTO dispute settlement system remain relatively unexplored. Existing academic literature has primarily focused on the narrow issue of jurisdictional conflict between DSMs of RTAs and the WTO dispute settlement system. Literature mapping out and classifying systematically the DSMs of RTAs is more limited. This research paper goes beyond considering the issue of jurisdictional conflict between the multilateral and "regional" regimes. We map out the DSMs in RTAs that have been notified to the WTO and were in force at the end of 2012 and consider a typology of these DSMs based on their nature and design. We also use the data obtained from our mapping exercise in two ways. First we identify trends and patterns of use either regionally or by individual countries of the different types of DSMs in RTAs. Trends are analysed in relation to five key factors: (i) evolution over time (ii) level of economic development (iii) regional characteristics (iv) level of integration (partial scope agreement free trade agreement or customs union) and (v) configuration (bilateral or plurilateral). Second we undertake a "nuts and bolts" analysis of the DSMs of RTAs by examining their approach to various issues in international dispute settlement. Our aim is to draw conclusions about the extent to which the predominant type of DSM in RTAs has features that are different from those of the WTO dispute settlement system.
Trade Liberalization and Labor Market Dynamics
I study trade-induced transitional dynamics by estimating a structural dynamic equilibrium model of the Brazilian labor market. The model features a multi-sector economy with overlapping generations heterogeneous workers endogenous accumulation of sector-specific experience and costly switching of sectors. The model's estimates yield median costs of mobility ranging from 1.4 to 2.7 times annual average wages but a high dispersion across the population. In addition sector-specific experience is imperfectly transferable across sectors leading to additional barriers to mobility. Using the estimated model for counter-factual trade liberalization experiments the main findings are: (1) there is a large labor market response following trade liberalization but the transition may take several years; (2) potential aggregate welfare gains are signicantly mitigated due to the delayed adjustment; (3) trade-induced welfare effects dep end on initial sector of employment and on worker demographics. The experiments also highlight the sensitivity of the transitional dynamics with respect to assumptions regarding the mobility of capita
Are You Experienced?
We examine the impact of banking crises on the duration of trade relations. We also investigate the effect of product-level characteristics such as the size of exports and exporting experience and of sector-level financial dependence variables on the time to recover after a banking crisis. Using highly disaggregated US import data from 157 countries between 1996 and 2009 we first provide evidence that banking crises negatively affect the survival of trade relations. On average the occurrence of a banking crisis decreases the rate of survival of trade relations by 13 percent. Moreover we find that both the size of exports and exporting experience matter for recovery of trade relations after banking crises. Sectoral financial dependence has an experience-specific effect. Relations with more experience recover faster in financially dependent sectors. There is instead no clear evidence indicating effects of size heterogeneity neither in financially dependent sectors nor in non-financially dependent ones. The results are robust and consistent across alternative econometric models.
Opening a Pandora’s Box
Economic projections for the world economy particularly in relation to the construction of Computable General Equilibrium (CGE) baselines are generally rather conservative and take scant account of the wide range of possible evolutions authorized by the underlying economic mechanisms considered. Against this background we adopt an ‘open mind’ to the projection of world trade trajectories. Taking a 2035 horizon we examine how world trade patterns will be shaped by the changing comparative advantages demand and capabilities of different regions. We combine a convergence model fitting three production factors (capital labor and energy) and two factor-specific productivities alongside a dynamic CGE model of the world economy calibrated to Economic projections for the world economy particularly in relation to the construction of Computable General Equilibrium (CGE) baselines are generally rather conservative and take scant account of the wide range of possible evolutions authorized by the underlying economic mechanisms considered. Against this background we adopt an ‘open mind’ to the projection of world trade trajectories. Taking a 2035 horizon we examine how world trade patterns will be shaped by the changing comparative advantages demand and capabilities of different regions. We combine a convergence model fitting three production factors (capital labor and energy) and two factor-specific productivities alongside a dynamic CGE model of the world economy calibrated to reproduce observed elasticity of trade to income. Each scenario involves three steps. First we project growth at country level based on factor accumulation educational attainment and efficiency gains and discuss uncertainties related to our main drivers. Second we impose this framework (demographics gross domestic product saving rates factors and current account trajectories) on the CGE baseline. Third we implement trade policy scenarios (tariffs as well as non-tariff measures in goods and services) in order to get factor allocation across sectors from the model as well as demand and trade patterns. We show that the impact of changing baselines is greater than the impact of a policy shock on the order of magnitude of changes in world trade patterns which points to the need for care when designing CGE baselines. observed elasticity of trade to income. Each scenario involves three steps.