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41. On the Heterogeneous Trade and Welfare Effects of GATT/WTO Membership

Author:
Gabriel Felbermayr, Mario Larch, Erdal Yalcin, and Yoto V. Yotov
Publication Date:
09-2020
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
We build on the latest developments in the structural gravity literature to quantify the partial and general equilibrium effects of GATT/WTO membership on trade and welfare. Using an extensive database covering manufacturing trade for 186 countries over the period 1980-2016, we find that the average impact of GATT/WTO membership on trade among member counties is large, positive, and significant. We contribute to the literature by estimating country-specific estimates and find them to vary widely across the countries in our sample with poorer members benefitting more. Using these estimates, we simulate the general equilibrium effects of GATT/WTO on welfare, which are sizable and heterogeneous across members, and relatively small for non-member countries. We show that countries not experiencing positive trade effects from joining GATT/WTO can still gain in terms of welfare, due to beneficial terms-of-trade effects.
Topic:
International Political Economy, Trade, WTO, and GATT
Political Geography:
Global Focus

42. The Components of Free Trade Agreements and Their Effects on International Trade

Author:
Moonhee Cho, Young Gui Kim, Kyong Hyun Koo, Hyeri Park, and Hyeyoon Keum
Publication Date:
06-2020
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
We analyzes the effects that the components of FTA have on international trade. According to the empirical results, the more free trade agreements contain WTO+ and WTO-X provisions and the more legally enforceable these provisions are, the more bilateral trade increases. We also find that the effects of FTA's provisions on trade depend on the economic level of FTA partner countries.
Topic:
International Trade and Finance, Bilateral Relations, Free Trade, and WTO
Political Geography:
Global Focus

43. The Way Forward for WTO Reform: Agricultural Subsidies and Special and Differential Treatments

Author:
Jin Kyo Suh, Ji Hyun Park, and Min-Sung Kim
Publication Date:
10-2020
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
The multilateral trading system has been in crisis. The world economy has changed significantly since the WTO replaced the previous GATT system and new challenges are quickly piling on top of the old ones. The rising emerging countries and the relative decline of traditional economic members, together with the need to deal with complex new issues such as climate change and e-commerce and digital trade, are shaking the foundations on which the WTO was built some 25 years ago. There is also growing momentum among many WTO members to ‘modernize’ the WTO, including the Appellate Body although the details and feasibility of reform are unclear at this stage. In this perspective, we suggest some ideas on both trade-distorting farm subsidies and S&DT which are the two important issues in the WTO negotiations.
Topic:
Agriculture, Reform, Economy, Multilateralism, WTO, and Subsidies
Political Geography:
Global Focus

44. The Tragedy of International Organizations in a World Order in Turmoil

Author:
Jean-Jacques Hallaert
Publication Date:
07-2020
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
China’s rise and the U.S. response to the perceived threat it represents to its predominance jeopardize the world order and affect international institutions. The paralysis of the WTO and the U.S. withdrawal from the WHO are the most visible examples, but not the only ones. This article presents the case of the International Monetary Fund. Quotas are the cornerstone of IMF governance. They determine each member’s contribution to the institution’s resources and their voting power. As the world evolves, the quota distribution needs to be adjusted. Adjustments in quota shares and thus voting powers have always been politically difficult. However, they were possible. In the early 1990s, members agreed to an increase in the representation of Japan. In the 2000s, they agreed to increase substantially the voting power of emerging economies. In contrast, the 15th General Review of Quotas concluded early 2020, failed to increase and realign quotas. The proximate cause for this was the opposition of the United States to a change in quotas. This paper argues that the U.S. decision was in large part motivated to prevent an increased influence of China. The failure to increase and realign voting powers may have long-lasting consequences. In the absence of a quota increase, the IMF will need to continue to rely on borrowed resources to avoid a drop in its lending capacity. This extension of the “temporary” recourse to borrowed resources undermines the governance of the Fund as voting powers (which are not linked to borrowed resources but only to quotas) are disconnected from member’s total contributions to the Fund and to their economic weight. This may trigger a new legitimacy crisis and provide incentives for countries like China to support the development of new and competing institutions which would better represent their interests and economic weight. Such a development would undermine the complex and fragile international financial architecture.
Topic:
International Organization, International Political Economy, Governance, IMF, and WTO
Political Geography:
United States, China, and Global Focus

45. Learning to Love Trade Again

Author:
Frank Lavin and Oscar Guinea
Publication Date:
06-2020
Content Type:
Research Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
We are at the moment, the first in seventy-five years, where there is no international consensus in support of trade. Indeed, trade is unloved, unsupported, and even unwanted. There is no shortage of topics in the rhetoric of trade complaints: from the rapid rise of China to Coronavirus as a metaphor for the evils of greater connectivity. Regardless of the validity of these complaints, none of them negate the central truth of trade: countries that engage in trade move ahead, and those that do not, stagnate. Our political leaders disagree. Anti-trade positions are held by leaders across the political spectrum, from Donald Trump to Bernie Sanders. And yet, the public is increasingly warm to the idea of trade. When Gallup asks Americans, “Do you see foreign trade more as an opportunity for economic growth through increased U.S. exports or a threat to the economy from foreign imports?” a record high of 79% see trade as an opportunity, with 18% viewing it as a threat. How did the world arrive at this moment where the benefits of trade are clearly evidenced while trade has become politically toxic? We identify four main factors: (i) U.S. absenteeism from the leadership role; (ii) detachment between trade and security architecture; (iii) no alternative leadership in Europe or elsewhere; and (iv) the cumbersome WTO process. Against this background we put forward five initiatives that will be big enough to count but unobjectionable enough to be adopted. The Big Three. The U.S., EU, and Japan, should establish a consultative body on trade to forge a new approach that allows trade to move ahead in the absence of universal consensus. No harm, no foul. Each of the Big Three should commit to zero tariffs on any item not produced in each particular market. A de minimis strategy. Tariffs should be eliminated on all products where the current tariff is less than 2%. At that level tariffs are simply a nuisance fee. Mind the social costs. Expand the Nairobi Protocols to include health products and green tech. Scrapping import tariffs on medical and green goods would not only encourage additional trade but will also provide health and environmental benefits. Harmonize down. The Big Three should commit that on every tariff line each of the three will be no worse than the next worse. In other words, each of the Big Three will agree to reduce its tariff on every product where it has the highest tariff of the three. These actions will spur the WTO, not undermine it. The measures we propose can be set up on a plurilateral basis that would allow other trading powers to participate. By breaking away from the tyranny of universal consensus, these actions will encourage the trading community – including the WTO – to get back in forward motion. In some respect, convergence between the Big Three is already happening. The EU and Japan signed an FTA that lowers import tariffs between these two economies, while the U.S. and Japan agreed to negotiate a comprehensive FTA. And if China is willing to step up? China should be welcomed into this group if it supports the four initiatives, changing the Big Three to the Big Four.
Topic:
International Political Economy, International Trade and Finance, Global Markets, Trade, and WTO
Political Geography:
United States, Japan, China, Europe, and Global Focus

46. Curbing State-Driven Trade Policies: How to Craft New & Effective Approaches to Counter Distortive Practices

Author:
Wendy Cutler
Publication Date:
07-2020
Content Type:
Policy Brief
Institution:
Asia Society
Abstract:
Much attention has been focused on China’s unfair intellectual property practices and the imbalance in the U.S.-China trade relationship, but equally troubling are large-scale Chinese industrial subsidies, the behavior of state-owned enterprises (SOEs), and in general, the oversized and opaque role of the Chinese state in the economy. While the U.S-China phase one trade deal tackled some important sources of bilateral tension and aimed to boost Chinese purchases of U.S. goods and services, it was silent on industrial subsidies and related matters, leaving them for the next phase of negotiations, the fate of which is now in question. U.S. concerns on these matters are shared by other trading partners including the European Union (EU) and Japan. Yet despite widespread disapproval of such practices, building new global rules to combat subsidies has proven challenging. This is due to several factors, ranging from gridlock at the WTO, differences of views among like-minded countries on the required level of ambition, and uncertainty as to how best to approach the enormous complexities in China’s subsidies and related policies. The Organization for Economic Cooperation and Development (OECD) has sought to unpack this complexity, conducting recent studies of Chinese subsidies in two key sectors: aluminum and semiconductors. Both studies illustrate how Chinese subsidies are not simple cash handouts from the state to protected firms so that they can sell at favorable and distorting prices. The OECD finds subsidies can take various forms, including downstream or upstream help that trickles up or down to the firm that’s intended to benefit. They can take the form of favorable equity or debt purchases or bonds provided at below-market rates. And with interconnected global value chains, subsidies can effectively be granted covertly, intended to benefit one firm that might be several links away along the chain. In China, the problem is compounded by an opaque “party-state” structure that obscures not only the recipients of subsidies, but also the source. According to Mark Wu, a Harvard Law School professor who previously served as the Director for Intellectual Property in the Office of the U.S. Trade Representative, subsidies not only flow directly from government bodies in Beijing, but also indirectly through informal responses to directives — sometimes even left unsaid, but understood — from the Chinese Communist Party. Against this backdrop, the Asia Society Policy Institute (ASPI) convened two roundtables in the fall of 2019 and the spring of 2020 to discuss how best to build a new rules-based infrastructure that might combat such subsidies and prevent trade-distorting results such as unfair competition, market access barriers, and, above all, overcapacity in global markets. Experts from the private sector, think tanks, governments, and academia weighed in with possible solutions, which included: Negotiating new rules in the WTO; Using the WTO dispute settlement system, despite its often-discussed flaws; Forming ad hoc rules-based approaches, where possible, like the U.S-EU-Japan trilateral initiative; Plurilateral negotiations conducted on a sector-by-sector basis; Forming coalitions of like-minded trading partners to establish an alternative model, much in the way that the Trans-Pacific Partnership (TPP) was framed. During the roundtables, most experts agreed that there is no silver bullet that solves the subsidy and related issues on its own. And most agree that, left unaddressed, the problem is likely to deepen. The COVID-19 pandemic might even exacerbate it by leading to more state involvement in economies around the world and making it hard to discipline Beijing’s practices. Recognizing all of these real challenges that the international trade community faces, the roundtables reached the following key conclusions: Transparency on the scope, level, and nature of industrial subsidies is vital; Efforts to publicize the ongoing work in these areas, particularly that being done by the OECD, should accelerate; Turning research into tangible new policies is a key step; and Persuading China to agree to updated rules will be necessary, given that China is a singular contributor to overcapacity.
Topic:
International Trade and Finance, Treaties and Agreements, Trade, Industry, and WTO
Political Geography:
China, Asia, North America, and United States of America

47. WTO accession, trade expansion, and air pollution: Evidence from China’s county-level panel data

Author:
Shuai Chen, Faqin Lin, Xi Yao, and Peng Zhang
Publication Date:
07-2020
Content Type:
Working Paper
Abstract:
This study provides evidence that trade expansion has contributed to the degradation of air pollution in China. On the basis of different responses of counties’ trade to China’s World Trade Organization accession at the end of 2001, we exploit air pollution data from NASA to construct a difference-in-differences predicted trade as an instrument for our identification. We document statistically significant and robust evidence on trade expansion, which accounts for approximately 60% and 20% for the increase of PM2.5 and SO2, respectively, in China. Findings on trade pollution relation are robust to various tests. Deterioration in the environment is mainly driven by scale and trade in polluting sectors.
Topic:
Trade, Pollution, and WTO
Political Geography:
China and Asia

48. The Berlin Pulse 2020/21 (full issue)

Author:
Gro Harlem Brundtland, Paolo Gentiloni, Peter Altmaier, and H.R. McMaster
Publication Date:
11-2020
Content Type:
Special Report
Institution:
Körber-Stiftung
Abstract:
In last year’s edition, we called 2020 an ‘eventful year’ with Germany’s presidency of the European Council and the US presidential election. But no one would have thought that a pandemic might be added to the list of major events affecting German foreign policy and political priorities around the globe. One year – and a COVID-19 special edition of The Berlin Pulse in between – later, international policy-making is slowly adjusting to the new level of uncertainty the pandemic brought into our lives. Despite these uncertain times, German public opinion on involvement or restraint in international crises remains solid as a rock: 44 percent of respondents say that Germany should get more strongly involved while 49 percent still prefer restraint. Since Körber-Stiftung posed this question for the first time in 2014, the public’s perspective has barely changed. In spite of this continuity, the present issue is also full of surprises and novelties. The idea of The Berlin Pulse is to identify potential gaps between German public opinion and expectations of international policy-makers. In 2020, another gap becomes an eye-catcher – the one between German and US public perceptions of the transatlantic partnership. A wide majority of US respondents considers Germany as a partner when tackling issues, such as protecting human rights and democracy (75 percent) or the environment (76 percent). By contrast, German respondents hardly reciprocate this feeling. With the US presidential election just behind us, an increasing US-Chinese rivalry in which Europe risks becoming – as Pauline Neville-Jones puts it – ‘the pig in the middle’ and crises beyond COVID-19 on the horizon, the present issue dedicates one chapter to each of these three developments to which German foreign policy needs to respond.
Topic:
Foreign Policy, NATO, Public Opinion, European Union, Multilateralism, Trade, Transatlantic Relations, and WTO
Political Geography:
Russia, China, Europe, India, Germany, Syria, and United States of America

49. Data Is Divisive: A History of Public Communications on E-commerce, 1998–2020

Author:
Susan Ariel Aaronson and Thomas Struett
Publication Date:
12-2020
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation (CIGI)
Abstract:
For 22 years, the members of the World Trade Organization (WTO) have been discussing how to govern e-commerce and the data that underpins it. In 2019, some 74 (now 86) nations began to negotiate e-commerce. These talks are conducted in secret and little is known about how they are progressing. However, WTO members issued a wide range of public comments on both the Work Programme on Electronic Commerce and the Joint Statement Initiative on Electronic Commerce from 1998, when the work program began, to the present. These communications provide context as well as a window into the negotiations. Using qualitative techniques to analyze these communications, the authors of this paper found that throughout the 22-year period, member states were divided by their understanding, capacity and willingness to set rules governing e-commerce or digital trade. Data, digital prowess and data governance expertise were creating division among members. The paper offers three suggestions for action policy makers could take to address this divide.
Topic:
Communications, Digital Economy, Data, and WTO
Political Geography:
Global Focus

50. The Investment Screening Regulation and its screening ground "security or public order": how the WTO law understanding undermines the Regulation's objectives

Author:
Jens Velten
Publication Date:
01-2020
Content Type:
Working Paper
Institution:
Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
Abstract:
The EU adopted Regulation 2019/452 (Regulation) as part of a more robust Common commercial policy to strengthen and defend its interests in a shifting global order. More concretely, the Regulation has two objectives: protecting domestic assets from harmful foreign investor interests, and equipping the EU with leverage to achieve more favourable treatment of EU investors abroad. Therefore, the Regulation provides Member States with an option to adopt foreign direct investment (FDI) screening mechanisms on the grounds of “security or public order”. However, the Regulation misses its objectives. The Regulation’s vague screening ground “security or public order” must be interpreted in accordance with WTO law. A detailed analysis finds that the relevant WTO notions of essential security interests and public order are rather narrow. The Regulation’s screening ground “security or public order” therefore only allows the screening of a few, high-profile cases of FDI. Such a narrow scope undermines the Regulation’s objectives.
Topic:
International Political Economy, International Trade and Finance, Foreign Direct Investment, and WTO
Political Geography:
Europe and European Union