Towards a new balance of trade in agriculture

Trade in agriculture is linked to a whole range of economic, environmental, societal and future interests. For this reason, international regulation of trade in agricultural goods is highly contentious. While mainly directed towards an opening of markets, the WTO Agreement on Agriculture also has some entry points for ‘non trade concerns’. However, the agreement still looks like a casual patchwork that allows rather unsystematic ally for exemptions, without explicitly exposing the grounds that allow for them. The question arises of how the agreement could be drafted in a more structured way, in order to make sure that the economic objectives are efficiently pursued, and at the same time that human rights and environmental concerns are adequately taken account of? The concept of sustainable development provides for a methodical ‘seven step’ framework that gives guidance on integrated decision making processes. In this paper, this framework is partially applied to the Agreement on Agriculture. This working paper served as an introductory note to a brainstorming workshop on the subject that took place on 27 March 2009 at the World Trade Institute, University of Bern.

Trade Costs, Quality, and The Skill Premium

We develop a monopolistic competition model with nonhomothetic factor input bundles where increasing quality requires increasing use of skilled workers. As a result more skill abundant countries export higher quality, higher priced goods. Using a multicountry dataset we test and confirm the findings in Schott (2004) of a positive effect of skill abundance on unit values identified with US data. We extend the core model with per unit trade costs leading to the Washington-apples effect that goods shipped over larger distance are of higher quality. The combination of high-quality goods being relatively skill intensive with the Washington-apples effect implies that countries at a larger distance from their trading partners display a higher skill premium. Simulating our model we find that a doubling of distance of a country relative to all its trading partners raises the skill premium in a country by about 2.3 percent.

The Role of Goods Trade Networks for Services Trade Volume

In this paper, we address the role of countries’ goods-trade networks for their services-trade volume. The paper employs a large cross section of bilateral trade data on aggregate cross-border goods and services sales and illustrates that the depth and overlap of two countries’ services networks induce a positive direct impact on their services-trade volume. The evidence takes into account that goods trade flows and networks are potentially endogenous so that the estimated direct effects support a causal interpretation. We find that the magnitude of the multilateral goods-trade network effect on the bilateral services-trade volume is much larger than that of bilateral goods-trade volume.

Special Tax Treatment as Trade Policy: A Database on Export Processing and Special Economic Zones

Many countries treat income generated via exports favourably, especially when production takes places in special zones known as export processing zones (EPZs). EPZs can be defined as specific, geographically defined zones or areas that are subject to special administration and that generally offer tax incentives, such as duty‐free imports when producing for export, exemption from other regulatory constraints linked to import for the domestic market, sometimes favourable treatment in terms of industrial regulation, and the streamlining of border clearing procedures. We describe a database of WTO Members that employ special economic zones as part of their industrial policy mix. This is based on WTO notification and monitoring through the WTO’s trade policy review mechanism (TPRM), supplemented with information from the ILO, World Bank, and primary sources. We also provide some rough analysis of the relationship between use of EPZs and the carbon intensity of exports, and relative levels of investment across countries with and without special zones.

Calibrating a CGE model with NTBs that Incorporates Standard Models of Modern Trade Theory

We propose a way to incorporate NTBs for the four workhorse models of the modern trade literature in computable general equilibrium models (CGEs). CGE models feature intermediate linkages and thus allow us to study global value chains (GVCs). We show that the Ethier-Krugman monopolistic competition model, the Melitz firm heterogeneity model and the Eaton and Kortum model can be defined as an Armington model with generalized marginal costs, generalized trade costs and a demand externality. As already known in the literature in both the Ethier-Krugman model and the Melitz model generalized marginal costs are a function of the amount of factor input bundles. In the Melitz model generalized marginal costs are also a function of the price of the factor input bundles. Lower factor prices raise the number of firms that can enter the market profitably (extensive margin), reducing generalized marginal costs of a representative firm. For the same reason the Melitz model features a demand externality: in a larger market more firms can enter. We implement the different models in a CGE setting with multiple sectors, intermediate linkages, non-homothetic preferences and detailed data on trade costs. We find the largest welfare effects from trade cost reductions in the Melitz model. We also employ the Melitz model to mimic changes in Non tariff Barriers (NTBs) with a fixed cost-character by analysing the effect of changes in fixed trade costs. While we work here with a model calibrated to the GTAP database, the methods developed can also be applied to CGE models based on the WIOD database.

Carbon dioxide emissions and international trade at the turn of the millennium

We present a new dataset of geographical production-, final (embodied) production-, and consumption-based carbon dioxide emission inventories, covering 78 regions and 55 sectors from 1997 to 2011. We extend previous work both in terms of time span and in bridging from geographical to embodied production and, ultimately, to consumption. We analyse the recent evolution of emissions, the development of carbon efficiency of the global economy, and the role of international trade. As the distribution of responsibility for emissions across countries is key to the adoption and implementation of international environmental agreements and regulations, the final production- and consumption-based inventories developed here provide a valuable extension to more traditional geographical production-based criteria.

Why Do Economies Enter into Preferential Agreements on Trade in Services? Assessing the Potential for Negotiated Regulatory Convergence in Asian Services Markets

More than one-third of the World Trade Organization-notified services trade agreements that were in effect between January 2008 and August 2015 involved at least one South or Southeast Asian trading partner. Drawing on Baier and Bergstrand’s (2004) determinants of preferential trade agreements and using the World Bank’s database on the restrictiveness of domestic services regimes (Borchert, Gootiiz, and Mattoo 2012), we examine the potential for negotiated regulatory convergence in Asian services markets. Our results suggest that Asian economies with high levels of preexisting bilateral merchandise trade and wide differences in services regulatory frameworks are more likely candidates for services trade agreement formation. Such results lend support to the hypothesis that the heightened “servicification” of production generates demand for the lowered services input costs resulting from negotiated market openings.

Why do Countries Enter into Preferential Agreements on Trade in Services? Assessing the Potential for Negotiated Regulatory Convergence in Asian Services Markets

More than a third of the World Trade Organization (WTO)-notified services trade agreements (STAs) in effect over January 2008 - August 2015 have involved at least one (South or Southeast) Asian trading partner. Drawing on Baier and Bergstrand's (2004) determinants of preferential trade agreements and using the World Bank's database on the restrictiveness of domestic services regimes (Borchert et.al. 2012), we examine the potential for negotiated regulatory convergence in Asian services markets. Our results suggest that countries within Asia with high levels of pre-existing bilateral merchandise trade and wide differences in services regulatory frameworks are more likely candidates for STA formation. Such results lend support to the hypothesis that the heightened "servicification" of production generates a demand for the lowered service input costs resulting from negotiated market opening.

Democratic Legitimation of Trade Policy Tomorrow: TTIP, Democracy and Market in the Swiss Constitution

Free Trade Agreements (FTAs) are increasingly more concerned with regulatory convergence, rather than trade liberalisation through elimination of tariffs. This appears to result more often in so-called dynamic trade agreements, which still evolve after adoption. Further economic integration in democracies, however, depends on the support of the constituency. This article takes a closer look at the democratic legitimation of global economic integration in a case study on Switzerland. It finds that the current principles and institutions of democracy in Switzerland are unlikely to fully accommodate the new regulatory challenges of dynamic FTAs.

Energy subsidies from a climate and trade perspective

A short paper for dissemination based on a research piece published by the E15Initiative: Subsidies, Clean Energy, and Climate Change, February 2015. Implemented jointly by ICTSD and the World Economic Forum, the E15Initiative convenes world-class experts and institutions to generate strategic analysis and recommendations for government, business, and civil society geared towards strengthening the global trade and investment system. The paper is also published in Spanish and Portuguese.

To fuse or not to fuse? Assessing the case for convergent disciplines on goods and services trade

Think piece by Pierre Sauvé for the E15 Initiative on Strengthening the Global Trade System In his latest essay for the ICTSD-World Economic Forum E15 initiative on Strengthening the Global Trade and Investment System for Sustainable Development, WTI Director of External Programmes and Academic Partnerships and faculty member Pierre Sauvé explores the case for fusing the law of goods with that of services in a world of global value chains. The paper does so by directing attention to the questions of whether the current architectures of multilateral and preferential trade governance are compatible with a world of trade in tasks; whether the existing rules offer globally active firms a coherent structure for doing business in a predictable environment; whether it is feasible to redesign the structure and content of existing trade rules to align them to the reality of production fragmentation; and what steps can be envisaged to better align policy and realities in the marketplace if the prospects for restructuring appear unfavourable. The paper argues that fusing trade disciplines for goods and services is neither needed nor feasible and may actually deflect attention from a number of worthwhile policy initiatives where more realistic (if never easily secured) prospects of generic rule-making may well exist.

Learning by Not Doing: Subsidy Disciplines in Services Trade

This paper explores the hitherto futile quest for developing disciplines on the trade- and investment-distorting effects of services subsidies. It sheds light on the multiplicity of factors that have weighed on the conduct of negotiations on subsidy disciplines in a services trade context at both the global and preferential levels, and advances a few thoughts on what the future may hold for the adoption of such disciplines. The analysis suggests that it is rather unlikely that WTO Members will any time soon reach a consensus on the matter of subsidy disciplines for services beyond those that currently (and timidly) obtain in the GATS and in many preferential trade agreements. The main reason behind such a conclusion stems from a marked rise in the value of preserving policy space in a trading environment characterized by considerably greater global market contestability than two decades ago.

Analysis of the prospects for updating the trade pillar of the European Union-Chile Association Agreement

The perception of the present state of trade relations with Chile is obscured by a lack of adequate understanding of its legal framework as well as of the policy behind it. This study attempts to clarify the present state of and future prospects for trade between the EU and Chile through an examination of previous agreements and the EU’s new approach to trade liberalisation. The authors agree with the large consensus existing on both the EU and Chilean sides regarding the efficacy of the Association Agreement, but note that any extension of an agreement with Chile should capture the spirit of older EU agreements rather than simply following the ‘NAFTA route’. The study also includes a comparative analysis between the EU-Chile agreement and current trade agreements being negotiated by the EU and Chile with third countries.

Analysis of the upcoming Modernisation of the Trade Pillar of the European Union-Mexico Global Agreement

Study for the EU Parliament co-authored by Rodrigo Polanco: The 1997 Global Agreement between the EC and its Member States and Mexico, together with the set of decisions taken in its framework, has been effective, and thus modifications of the agreement are mainly motivated by changes in the global landscape since it was first enacted. Therefore, broad considerations on how the European Union (EU) trade policy is shaped are extremely relevant for the upcoming negotiations with Mexico. In this context, the needs and expectations, both from the EU and Mexico, regarding any further agreements are examined, focusing in particular on areas beyond trade in goods and services such as procurement, investment, and regulatory cooperation. It is argued that the 'old' Association Agreements should be taken as models for any modifications, given their emphasis on EU-specific issues and their ability to accommodate the needs of Mexico in any deepened agreement.