Narrow Results

The price-wedge method yields a tariff-equivalent estimate of technical barriers to trade (TBT). An extension of this method accounts for imperfect substitution between domestic and imported goods and incorporates recent findings on trade costs. We explore the sensitivity of this revamped TBT estimate to its key determinants (substitution elasticity, preference for home good, and trade cost). We use the augmented approach to investigate the recent Japan-U.S. apple trade dispute and find that removing the Japanese TBT would yield limited export gains to the United States. We then draw policy implications of our findings.

We analyze whether financial compensation is preferable to the WTO’s current dispute settlement system that permits injured member countries to impose retaliatory tariffs. We show that, ex-post, monetary fines are more efficient than tariffs in terms of granting compensation to injured parties but fines suffer from an enforcement problem since they must be paid by the violating country. If fines must ultimately be supported by the threat of tariffs, they fail to yield a more cooperative outcome than the use of tariffs alone. Furthermore, the exchange of bonds between symmetric countries also does not improve enforcement relative to retaliatory tariffs.

This paper analyzes national and international policy options to encourage the international transfer of technology, distinguishing between four major channels of such transfer: trade in products, trade in knowledge and technology, foreign direct investment, and intranational and international movement of people. A typology of countries and appropriate policy rules of thumb are developed as a guide to both national policymakers and multilateral rule making in the WTO. We argue that the optimal policy mix varies across countries and that there is a need for differentiation in the design and application of rules in trade agreements as well as for a more explicit focus on evaluation of the impacts of policies.

This paper develops a North-South model to evaluate the South’s incentive for patent protection when a Northern firm’s investment in quality-enhancing research and development (R&D) is affected by its patent policy. The model is used to (a) evaluate the impact of requiring the South to fulfill its key WTO obligation of instituting patent protection and (b) to address the role of two major flexibilities that WTO members enjoy with respect to their patent policies: the freedom to implement exhaustion policies of their choosing and the right to use compulsory licensing (CL) subject to certain stipulations. Two forces drive the model: how much the firm invests in R&D and whether or not selling in the South maximizes its global profit. CL improves consumer access in the South and can even raise innovation and global welfare. Provided the South implements patent protection, innovation and welfare are higher if the North follows national as opposed to international exhaustion. However, the South’s incentive for patent protection is not necessarily stronger under national exhaustion. Not only is CL more likely to be used under international exhaustion, the welfare gain resulting from its application is also higher relative to that under national exhaustion.

We analyze whether financial compensation is preferable to the WTO’s current dispute settlement system that permits injured member countries to impose retaliatory tariffs. We show that, ex-post, monetary fines are more efficient than tariffs in terms of granting compensation to injured parties but fines suffer from an enforcement problem since they must be paid by the violating country. If fines must ultimately be supported by the threat of tariffs, they fail to yield a more cooperative outcome than the use of tariffs alone. Furthermore, the exchange of bonds between symmetric countries also does not improve enforcement relative to retaliatory tariffs.

In the context of a current global economic crisis and an unfinished World Trade Organization (WTO) Doha Round, multilateralism is at its weakest point. The proliferation of bilateral and regional trade agreements seems to be the natural consequence of failed multilaterlism. In this difficult context, this chapter argues that the attitude of China — one of the three global economic superpowers — to multilaterlism is questionable or unclear. China poses a major challenge to the world economy by virtue of being a new global economic superpower.

For a country to be considered a global economic superpower, it must meet three criteria: 1) it must be large enough to significantly affect the world economy; 2) it must be sufficiently dynamic to contribute meaningfully to global growth; and 3) it must be open enough to trade and capital flows to have a major impact on other countries. China meets these criteria, but is a unique global economic superpower in three ways. First, it is still a poor country with a Gross Domestic Product (GDP) per capita of around $6,000 in terms of purchasing power parity. Second, China is not yet a democracy in the Western conception of the term. And third, it is not yet a market economy according to some WTO members. Nevertheless, China's rapidly growing economic, political, and cultural engagement and influence in today's world is both undeniable and remarkable, even if China's rise in global power is not yet at the level of the US during the 20th century or Great Britain during the 19th century.

China's trade expansion started in 1978, when the country initiated reforms and opening-up policies. For the past decade, its position as a strong player in international trade had been remarkable. Structural reforms in China, including trade liberalisation, have resulted in annual real GDP growth rates in excess of 10% over the past 4 years, rising per capita income and poverty reduction. In the process, China has become the world's second largest trader. And yet, it is argued that China should play an even more prominent role in international economic institutions and governance and assume a responsibility commensurate with the benefits it derives from the world trading system. Why? Because with greater power and a greater voice comes greater responsibility.

As opposed to playing a proactive role in the world trading system, China attempts to establish itself as a gravity centre in Asia by concluding many low-quality, politically motivated bilateral free trade agreements in the region (for example, the China-ASEAN FTA or China in the APEC context). In this sense, the chapter argues that China's trade policy strategy is the creation of a powerful Asian trading bloc, given China's strong position in Asia. In fact, few regional initiatives are undertaken by other countries without first considering what China thinks or how China might react.

If multilateralism continues to weaken, the likelihood of an East Asia Free Trade Area led by China within the next decade is very high as part of China's strategy of promoting regional identity. Should this crystallise, one could envisage a tripolar global trade regime with a new Asian pole to counteract the already existing power centres in the European Union and the US. Moreover, it would most likely mean further deterioration of the current multilateral trading system. Furthermore, China's policy towards regional trade agreements will have a major impact on the international trading system, the debate about regionalism and multilateralism, and the policy of the WTO concerning regional trade agreements.

Changes in trade policy affect a nation's economic welfare through terms-of-trade and volume-of-trade effects. A move to global free trade would imply higher world economic welfare equal to the sum of all nations' volume-of-trade, or efficiency, effects. Since the sum of the terms-of-trade effects across all nations is zero, terms-of-trade effects are contentious. Konishi, Kowalczyk and Sjöström (2003) have shown that if customs unions do not affect trade with non-member countries, immediate global free could be achieved if free trade were proposed together with international sidepayments equal to the terms of trade effects. How large would these terms of trade effects, and hence transfers, be? This paper presents estimates from a simple computable general equilibrium model of a world economy of perfect competition. We show that, in some cases, terms-of-trade effects are small compared to efficiency gains, and transfers are not necessary for free trade. In other cases, terms-of-trade gains may account for more than 50% of a country's gains from free trade and transfers could be large.

The GATT gave special treatment to agriculture by allowing quantitative import restrictions when domestic output was also controlled, and made an exception to the ban on export subsidies by allowing them for primary products, subject to somewhat weak and imprecise conditions. Both were concessions to the operation of domestic farm policies in developed countries, primarily the US and the UK and later Canada and the EU, and full advantage was taken of these legal exceptions. Subsidies in general had been treated leniently in the GATT with merely the obligation to notify if they impacted upon exports. Domestic subsidies for agricultural products had significant impacts on both imports and exports and were seen to be a significant part of the trade problem, but operated under minimal constraints. So the exceptional treatment of agriculture in the GATT had led to a dysfunctional trade regime.

The Uruguay Round faced up to the inchoate conditions on world markets and the deterioration of trade relations that these exclusions allowed. The Agreement on Agriculture (URAA) specifically banned quantitative restrictions on imports, except those introduced to guarantee access and banned new export subsidies, capping and reducing existing expenditures on the programs and the volumes that could be subsidized. Domestic subsidies that were deemed to be most trade-distorting were capped and modestly reduced. The Doha Round would, if completed, eliminate export subsidies, severely limit the ability to provide trade-distorting support, and reduce the bound tariffs by a considerable extent.

The URAA was negotiated at a time when the US and the EU were the main players in the agricultural policy space and it represented a way of disciplining trade to avoid conflicts and reduce protection. Domestic policies were reformed in a way that was consistent with the URAA constraints. If the Doha Round is successful, most of the special provisions for agriculture will no longer be needed. But at that stage the URAA may inadvertently hamper the process of developing trade rules that meet new challenges.