Understanding the GATT’s wins and the WTO’s woes
The WTO is said to be in a funk – unable to conclude the Doha Round even as its members liberalise unilaterally and regionally. CEPR's newest Policy Insight argues that tactics used to get consensus at the last Round pushed the organisation into decision-making’s “impossible trinity” (consensus, uniform rules, and strict enforcement). A Doha package with something for everyone may be found, thus defeating the impossible triangle. The big-package tactic, however, won’t help the WTO confront 21st century challenges in a timely manner; for that, at least one of the triangle’s corners must be modified.
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, Doha Round
, international trade
Information frictions and the law of one price: "When the states and the kingdom became united"
Claudia Steinwender 16 January 2014
Information is critical for the efficient functioning of markets, yet is in reality often limited. Since researchers usually cannot observe the information that market participants have, little is known about how information frictions distort trade flows and price patterns. This column discusses research that quantifies the effects of information frictions by looking at an historical episode – the transatlantic telegraph connection of 1866. Information frictions decreased average trade flows and the volatility of trade, leading to substantial welfare losses.
When it comes to global trade flows, the world is still far from flat. What kind of trade barriers explain the “missing trade” (Trefler 1995)? Economists have recognised that indirect barriers are more important than direct trade barriers (e.g. tariffs), but the precise nature of these barriers is still poorly understood (Anderson and van Wincoop 2004, Head and Mayer 2013). Recent research has emphasised information frictions as a potential explanation (Allen 2012).
US, international trade, Hollister UK, information frictions
The dragon awakes: Is Chinese competition policy a cause for concern?
Mario Mariniello 09 November 2013
Since the adoption of the Anti-Monopoly law in 2007, the Chinese competition authorities have stepped up enforcement of mergers and anti-competitive practices. The Chinese Ministry of Commerce has relied heavily on behavioural remedies in merger cases (as opposed to the more efficient structural remedies favoured by the European Commission). Furthermore, merger policy has been used to protect domestic industries from competition. In contrast, Chinese fines for cartels have shown no foreign bias, and if anything have been too low.
Foreign businesses are increasingly realising that China has antitrust laws, and is not shy about using them. The Glencore/Xstrata merger in the spring was cleared only with conditions imposed by the Chinese Ministry of Commerce. In August, the Chinese National Development and Reform Commission imposed a record €82 million fine on milk powder producers for a price-fixing conspiracy. The Chinese authorities are also taking more decisions.
China, international trade, protectionism, Competition policy, antitrust
Awakening the WTO
Hector R. Torres 21 September 2013
'Special and differential treatment' was justified on the basis that developing countries lacked the fiscal resources to smooth the transition to free trade. However, despite improved fiscal circumstances, exceptions to WTO rules remain in place. Establishing an independent watchdog for the WTO could help it to address these issues.
Admitting that 'the present is just a snapshot in a journey' is disconcerting, so we feel better assuming that the current state of affairs will turn out to be permanent. Indulging in this mistake is common, and we also see it happening in multilateral institutions – particularly if they do not have a watchdog to keep them free from self-deception. The WTO does not have such a watchdog, and this may explain its resistance to acknowledging the obvious.
Institutions and economics International trade
WTO, Doha Round, developing countries, international trade
Offshoring and its effects on innovation in emerging economies
Ursula Fritsch, Holger Görg 23 September 2013
Outsourcing is a controversial practice. This column looks at its effects on firm-level innovation in emerging markets. The authors find robust evidence that outsourcing is positively related to various innovation measures. However, outsourcing only leads to increased R&D spending in countries where intellectual-property rights are well-protected.
Most empirical studies of the impact of outsourcing on firms look at industrialised countries. However, outsourcing is also common in emerging economies, and firms in middle-income countries split up their production processes similarly to firms in developed countries (see figures in Miroudot et al. (2009) on trade in intermediates). Recent research analyses the benefits to firms from outsourcing, focusing mainly on productivity and innovation effects. The latter are particularly important, since innovation is a key determinant of productivity improvements and – ultimately – growth.
International trade Productivity and Innovation
R&D, offshoring, innovation, international trade, emerging markets, outsourcing, technology transfer
Why does finance matter for trade? Evidence from new data
Marc Auboin, Martina Engemann 03 December 2012
What effect does trade finance have on international trade? This column uses new data to stress the importance of trade finance for international trade both in crisis and in non-crisis periods. The major policy lesson is that there must be high levels of market incentives for supplying trade credit, particularly during a period of ‘deleveraging’ of the financial system. That said, trade credit statistics could be vastly improved if we wish to continue comparing global trade finance transactions against global trade.
Academic interest in the role of trade finance has grown in the context of the financial crisis of 2008-09 and the subsequent economic downturn, just as policymakers’ interest was once caught by the Asian financial crisis (IMF 2003).
trade, international trade, financial crisis, Trade finance, Great Recession, trade credit, trade insurance
Global trade in services: Fear, facts, and offshoring
J. Bradford Jensen 19 November 2012
Should developed countries fear trade in services? Won’t high skilled jobs be lost to cheaper, developing country service workers? This column argues that trade in services represents a profitable opportunity as long as international trade in services is liberalised. The US and other developed countries should aggressively pursue fairer and thus more favourable terms under the WTO’s Government Procurement Agreement.
Should the US, or indeed the EU, Japan, Canada, or Australia, fear increased trade in services? As the ‘Really Good Friends of Services’ discussions gain momentum in Geneva, it seems an important time to ask1.
global imbalances, WTO, international trade, protectionism
Coping with loss: The impact of natural disasters on developing countries' trade flows
Jorge Andrade da Silva, Lucian Cernat 09 February 2012
Natural disasters often hit developing countries hardest. To add to the devastating death toll, trade and development can be knocked off course. This column suggests that exports of small developing countries fall by nearly a quarter, and that this effect can be felt for up to three years. Exports of larger developing countries, on the other hand, are not significantly affected.
The European Commission has recently published its Trade and Development Communication, which underlines trade as one of the key drivers to support development, stimulate growth, and lift people out of poverty. In addressing the issues, it also recognises the disruptive potential of natural disasters.1
Development Environment International trade
developing countries, international trade, natural disasters
Import protection and the Great Recession
Chad P Bown 29 August 2011
While the Great Recession has not led to a massive global resort to protectionism, governments have nevertheless been active with their trade policy during the crisis. This column explores how governments adjusted the scale and composition of their temporary trade barriers – antidumping, safeguard, and countervailing-duty policies –during the crisis, as well as how policy use fits recent historical context and creates the need for post-crisis policy reform.
The global economic contraction of 2008-09 and the trade collapse stoked concern over a return to Great Depression-like economic conditions and autarkic government policies, including resort to new trade barriers (see Evenett 2011). Figure 1 illustrates this clear concern through the time-series pattern of Internet searches as reported by Google Trends – public interest in the “Great Depression” spiked in October 2008 shortly after the collapse of Lehman Brothers, and curiosity over “Protectionism” followed closely thereafter, peaking in February 2009.
Global crisis International trade
international trade, protectionism, temporary trade barriers
The value-added content of trade
Robert Johnson, Guillermo Noguera 07 June 2011
Roughly two-thirds of international trade is in intermediate goods. As a result, measures of trade flows that tally the gross value of goods at each border crossing lead to a distorted view of world trade. Using a value-added measure, this column finds that the controversial US-China imbalance is in fact around 40% smaller than many people think.
Trade in intermediate inputs accounts for roughly two-thirds of international trade. This input trade reflects the increasing fragmentation of production processes across borders.1 It also creates two distinct challenges for measuring international interdependence.
international trade, value added