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Simulating world trade in the decades ahead: driving forces and policy implications

The geography and composition of international trade are changing fast. We link a macroeconomic growth model and sectoral CGE framework in order to project the world economy forward to the year 2035 and assess to what extent current trends in trade are expected to continue.

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Constructing fully traceable scenarios based on assumptions grounded in the literature, we are also able to isolate the relative impact of key economic drivers. We find that the stakes for developing countries are particularly high: The emergence of new players in the world economy, intensification of South-South trade and diversification into skill-intensive activities may continue only in a dynamic economic and open trade environment. Current trends towards increased regionalization may be reversed, with multilateral trade relationships gaining in importance. Hypothetical mega-regionals could slow down, but not frustrate the prevalence of multilateralism. Continuing technological progress is likely to have the biggest impact on future economic developments around the globe. Population dynamics are influential as well: For some countries, up-skilling will be crucial, for others labour shortages may be addressed through migration. Several developing countries would benefit from increased capital mobility; others will only diversify into dynamic sectors, when trade costs are further reduced.

No:  ERSD-2014-05

Authors: Lionel Fontagné, Jean Fouré and Alexander Keck

Manuscript date: April 2014

International trade, macroeconomic projections, CGE simulations

JEL classification numbers:

E27, F02, F17, F47

Disclaimer 

This is a working paper, and hence it represents research in progress. This paper represents the opinions of the author, and is the product of professional research. It is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members. Any errors are the fault of the author. Copies of working papers can be requested from the divisional secretariat by writing to: Economic Research and Statistics Division, World Trade Organization, Rue de Lausanne 154, CH 1211 Geneva 21, Switzerland. Please request papers by number and title.

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The WTO: Theory and Practice

We consider the purpose and design of the World Trade Organization (WTO) and its predecessor, GATT. We review recent developments in the relevant theoretical and empirical literature. And we describe the GATT/WTO architecture and briefly trace its historical antecedents. We suggest that the existing literature provides a useful framework for understanding and interpreting central features of the design and practice of the GATT/WTO, and we identify key unresolved issues.

We thank our reviewer, Peter Neary, for very helpful comments. Parts of this Review draw heavily from an earlier review article (Bagwell and Staiger, 2002a) and on excerpts from Chapter 7, pp. 205-234, "Economic Theory and the Interpretation of GATT/WTO" by Kyle Bagwell and Robert W. Staiger in New Frontiers in Economics, edited by Michael Szenberg and Lall Ramrattan Copyright © 2004 Cambridge University Press. Reprinted with permission. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.

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The World Trade Organization: Theory and Practice (with Robert Staiger), Annual Review of Economics , Vol. 2, September 2010, 223-56.

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Assessing the Relevance of the WTO in International Trade and Development

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• Pablo Heidrich  

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Whether in global health, human security, or international trade governance, there are two ways of assessing the relevance of a multilateral institution. One approach is to begin with the institution itself and assess what it has done in terms of its mandate. Another, opposite approach consists of examining the subject explicitly targeted by that mandate to study how it has evolved. This method captures the impact or relevance of the agreements and actions resulting from a multilateral institution’s mandate without being institution-centric in the analysis.

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Heidrich, P. (2013). Assessing the Relevance of the WTO in International Trade and Development. In: Besada, H., Kindornay, S. (eds) Multilateral Development Cooperation in a Changing Global Order. International Political Economy Series. Palgrave Macmillan, London. https://doi.org/10.1057/9781137297761_9

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WTO working papers usually represent research in progress. Such research may be conducted in the preparation of WTO Secretariat reports, studies or other material for WTO members. The papers are circulated for comment because the WTO considers critical review of professional research to be extremely important.

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Aid for Trade supports developing and least-developed countries in building their trade capacity and in increasing their exports by turning market access opportunities into market presence. It does so by addressing four key areas: trade policy & regulations; economic infrastructure; building productive capacity; and trade-related adjustment.

Trade Policies Supporting Women’s Economic Empowerment

This paper looks at the various trade policies WTO Members have put into place to foster women’s economic empowerment. The analysis below is based on the information provided by WTO Members as part of their Trade Policy Review (TPRs) process from 2014 to 2018. Reports from the WTO Secretariat, governments as well as the question and answer sessions were examined for the purpose of this paper.

How WTO Commitments Tame Uncertainty

Guided by a cost benefit analysis model and using a unique database of tariff bindings for all WTO countries over the 1996-2011 period, we show that WTO commitments affect members’ trade policy. More stringent bindings reduce the likelihood of responding to import shocks by raising tariffs and increase the likelihood of contingent measures. We argue that this reduces overall trade policy uncertainty. In a counterfactual scenario where WTO members can arbitrarily increase tariffs they are 4.5 times more likely to do so than under current bindings.

Product Patents and Access to Innovative Medicines in a Post-TRIPS era

This WTO working paper studies availability and affordability of new and innovative pharmaceuticals in a post-TRIPS era. The WTO’s TRIPS Agreement (TRIPS) makes it obligatory for WTO members– except least-developed country members (LDCs) - to provide pharmaceutical product patents with a 20-year protection term. Developing country members, other than LDCs, were meant to be compliant with this provision of TRIPS by 2005.

Potential Economic Effects of a Global Trade Conflict

The WTO Global Trade Model is employed to project the medium-run economic effects of a global trade conflict. The trade conflict scenario is based on recent estimates in the literature of the difference between cooperative and non-cooperative tariffs.

Distance, Formal and Informal Institutions in International Trade

This paper brings together three strands of literature on the determinants of international trade – distance, formal, and informal institutions – to explain differences in export performance across countries. Using an augmented gravity model, we find that the importance of formal institutions (rule of law) for bilateral trade increases with distance.

The welfare effects of trade policy experiments in quantitative trade models

This paper compares the solution methods and baseline calibration of three different quantitative trade models (QTMs): computable general equilibrium (CGE) models, structural gravity (SG) models and models employing exact hat algebra (EHA). The different solution methods generate identical results on counterfactual experiments if baseline trade shares or baseline trade costs are identical.

Services Trade Policy, WTO Commitments, and their Role in Economic Development and Trade Integration

Services have long been perceived as playing a secondary role in world trade. In particular, the role of services trade policies and multilateral services commitments often tends to be downplayed. However, in value added terms, services account for about 50% of world trade and are significant in exports of countries of all levels of development.

Investment Provisions in Preferential Trade Agreements: Evolution and Current Trends

Our analysis covers 230 PTAs of which 111 contain substantive provisions on investment. Over the past 60 years or so, States have created an extensive network of Bilateral Investment Treaties (BITs) that govern and protect international investment. The number of BITs concluded annually continues to increase, although this rate has tapered off over the past decade.

E-commerce and Developing Country-SME Participation in Global Value Chains

Two far-reaching developments have increased the trade opportunities for SMEs in developing countries. Firstly, the rise of the internet and advances in ICT have reduced trade-related information and communication costs. Secondly, the international fragmentation of production has increased the opportunities for SMEs to specialize in narrow activities at various stages along the production chain.

Competition policy, trade and the global economy: Existing WTO elements, commitments in regional trade agreements, current challenges and issues for reflection

Competition policy, today, is an essential element of the legal and institutional framework for the global economy. Whereas decades ago, anti-competitive practices tended to be viewed mainly as a domestic phenomenon, most facets of competition law enforcement now have an important international dimension. Examples include: the investigation and prosecution of price fixing and market sharing arrangements that often spill across national borders and, in important instances, encircle the globe; multiple recent, prominent cases of abuses of a dominant position in high-tech network industries; important current cases involving transnational energy markets; and major corporate mergers that often need to be simultaneously reviewed by multiple jurisdictions.

Addressing Tensions and Avoiding Disputes

Most specific trade concerns (STCs), which are raised before the WTO Committee on Technical Barriers to Trade (TBT Committee), disappear from the TBT Committee’s meeting agendas without escalating into formal disputes. At the same time, a relatively small number of TBT-related disputes have been subject to the WTO dispute settlement procedures. By examining the practice of raising STCs and the relationship between STCs and disputes, the paper emphasises the role of STCs as a trade tension resolution mechanism.

The “China Shock” Revisited

We exploit a decomposition of gross trade flows into their value added components to reassess the relationship between increased imports from China and manufacturing jobs in US local labour markets following the seminal paper of Autor, Dorn, and Hanson (2013, ADH).

How Regional Trade Agreements Deal with Disputes Concerning their TBT Provisions?

This paper investigates how RTAs treat disputes concerning their TBT provisions, in particular whether they treat them differently from other types of dispute, and how they deal with any potential overlap with the WTO when the substantive obligations of the RTA and the WTO TBT Agreement are the same (or similar).

Digital Connectivity & E-Commerce

Digital networks are an increasingly critical component of global trade. In 2017, the Global Review of Aid for Trade highlighted the importance of accessible and affordable connections for trade connectivity. Drawing extensively on information harvested in the Monitoring and Evaluation exercise in preparation for the Review, this paper analyses aid for trade for digital connectivity and e-commerce.

WTO Trade Monitoring Ten Years on Lessons Learned and Challenges Ahead

A decade has passed since the onset of the global financial crisis in 2008. Less than a month after the collapse of the investment bank Lehman Brothers, an internal Secretariat Task Force was established by the WTO Director-General to monitor the trade related developments associated with the global financial crisis.

How Does the Regular Work of WTO Influence Regional Trade Agreements?

This paper illustrates how the work of the WTO's standing committees is fuelling regulatory cooperation between WTO members, and inspiring RTA negotiators.

Specialization Within Global Value Chains

This paper studies the factors of comparative advantage within global value chains relying on a framework where comparative advantage is measured through the interaction of country and industry characteristics.

Recent Trade Dynamics in Asia

This paper looks at the extent to which the shift in the lower value added production to countries in the following development "tier" is actually becoming a reality.

Can Economic Sanctions be Effective?

While economic sanctions may be attractive policy tools for governments wanting to express discontent with a country's behaviour, it is arguable if from an economic perspective sanctions can achieve the change that is often envisaged through the punitive measures taken. In fact, the literature does not present conclusive evidence that economic sanctions are an effective policy instrument. Nevertheless the number of sanction episodes is on the rise and have increasingly gained in popularity in recent years. What can explain that?

Competition Agency Guidelines and Policy Initiatives Regarding the Application of Competition Law Vis-À-Vis Intellectual Property

Competition agency guidelines, policy statements and related advocacy are an important vehicle for policy expression and the guidance of firms across the full spectrum of anti-competitive practices and market conduct.

Least-Developed Countries, Transfer of Technology and the Trips Agreement

This paper examines the background of Article 66.2 of the TRIPS Agreement, the nature of this obligation on developed country Members that pertains to the promotion of technology transfer to LDC Members and how it is being implemented and how such implementation is being monitored in the TRIPS Council.

Trade, Technology, and Prosperity

Trade and technological change continually alter the workplace and labor-market outcomes, with consequences for economy-wide welfare and the distribution of real incomes.

When Bad Trade Policy Costs Human Lives

Many developing countries still levy tariffs on mosquito nets, thereby discouraging their use and contributing to the spread of diseases such as malaria and dengue. Focusing on sub-Saharan Africa, the paper shows to which extent such tariffs are in place and, based on existing elasticity figures, calculates the cost of this policy.

The Application of Competition Policy Vis-À-Vis Intellectual Property Rights

This paper examines the evolution of national competition (antitrust) policies and enforcement approaches vis-à-vis intellectual property rights (IPRs) and associated anti-competitive practices in major jurisdictions over the past several decades. It focuses especially on the underlying process of economic learning that has, the authors suggest, driven relevant policy changes.

The Contribution of Services Trade Policies to Connectivity in the Context of Aid for Trade

This paper examines how services trade and policies contribute to connectivity. It highlights the economic relevance of services and identifies some key channels through which trade in services contributes to physical and digital connectivity. The paper examines the impact of services trade policies on connectivity in view of recent research showing their impact on sectoral performance, economic welfare and development. Finally, it discusses the positive contribution that aid for trade can make in support of services policies.

Provisions on Electronic Commerce in Regional Trade Agreements

This paper reviews the different types of provisions explicitly addressing electronic commerce (e-commerce) in regional trade agreements (RTAs). The analysis covers the 275 RTAs currently in force and notified to the WTO as of May 2017.

Georgia's Post-Accession Structural Reform Challenges

The process leading to WTO accession is complex, requires solid domestic coordination mechanisms in the acceding country, a rethinking of its economic and trade policies and significant domestic structural reforms. It often implies the creation of new institutions designed to coordinate and implement the policies at the national level, as was the case in Georgia.

The Falling Elasticity of Global Trade to Economic Activity

Since the recovery from the great financial crisis in 2010, global real trade flows grew much slower than pre-crisis, in both absolute terms (growth rates) and relative terms (relative to GDP, from 2:1 in the great 1990's to 1:1 since 2012) A debate has arisen as to whether this global trade slowdown, and related falling trade-to-income elasticity, was structural or cyclical.

Interplay Between Patents and Standards in the Information and Communication Technology (ICT) Sector and its Relevance to the Implementation of the WTO Agreements

The interplay between patents and standards in the information and communication technology (ICT) sector has been intensively debated at international, regional and national levels over the past decades. In essence, the debate is firstly about the extent and impact of patent holdup and holdout in the ICT sector, and then about how to eliminate or reduce these practices.

Trade Issues Affecting Disaster Response

The frequency, severity and economic impact of natural disasters are growing. Import surges resulting from disaster-response efforts can highlight underlying structural failings in the border clearance regimes of disaster-affected countries.

Does Trade Openness Contribute to Driving Financing Flows for Development?

Trade has been recognized in the 2030 development Agenda as well as in the Addis Ababa Agenda for Action as an important means for the implementation of the Sustainable Development Goals (SDGs).

An Empirical Assessment of the Economic Effects of WTO Accession and its Commitments

Besides facilitating access to the world market, WTO accession negotiations entail a process of domestic reforms that are expected to improve the supply side of acceding economies. However, measuring the actual impact of accession remains an empirical debate.

The Revised WTO Agreement on Government Procurement (GPA)

The WTO's plurilateral Agreement on Government Procurement ("the GPA" or "the Agreement") is an important ongoing success story for the Organization. In March 2012, the GPA Parties completed a comprehensive revision of the Agreement, encompassing both its text and coverage (market access commitments). The revised GPA, the negotiating processes that led to its adoption and coming into force, and the continuing gradual broadening of its membership are of therefore interest for the evolution of the international trading system. The GPA's successful renegotiation, the continuing growth of its membership and its vitality as an instrument of public policy were not achieved through happenstance. The paper discusses a number of specific design features of the GPA that clearly facilitated the successful conclusion of the renegotiation and that, as such, may in the future be relevant to other areas of global trade liberalization. In addition to the Agreement's plurilateral nature, of particular interest are the approach taken with respect to application of the most-favored-nation (MFN) principle in the Agreement; the GPA's continuing strong emphasis on principles of reciprocity in market access concessions; and its approach to special and differential treatment for developing countries, in all of which it differs from approaches that are widely used in other WTO Agreements. Apart from the above, the GPA revision is important for the merging of trade and good governance concerns that it exemplifies. As discussed in the paper, the themes of governance and the sound management of public resources that are treated in the revised Agreement were not afterthoughts to the renegotiation; rather, they permeated the revised text and received focused attention from the Parties in their own right. As well, the GPA has direct implications for investment policy and for domestic economic reforms, and is an important tool of e-commerce. And, the revision has made possible very significant synergies between the GPA and other international instruments and activities in reducing barriers to participation and strengthening governance in public procurement markets. For all these reasons, the revised Agreement is likely to have a wider impact than meets the eye, and well merits the support and attention that it has received from the participating WTO Member governments.

Plurilateral Trade Agreements

There are essentially two types of plurilateral trade agreements (PAs) among WTO Members, n exclusive and an open variant. While the benefits of the former agreements are shared among participants only, the latter are implemented on an MFN-basis, thus profiting non-signatories as well. The most prominent examples are the Information Technology Agreement (1996) and the Fourth and Fifth Protocols under the GATS (1997) on telecom and financial services, respectively. To preclude ‘free riding’, their entry into force was made contingent on the participation of a ‘critical mass’ of countries. The respective benchmarks, usually market shares of some 80% or more, are quite challenging, however. To promote more widespread use of plurilaterals, given the plethora of pressing policy concerns, whether investment-, competition- or labour-related, and the persistent stalemate in the Doha Round negotiations, the conclusion of exclusive agreements is thus being (re-)considered in ongoing policy discussions. This article takes a sceptical view, since any such PA would need to be agreed by consensus among all 160-odd WTO Members. It may prove more rewarding to further explore the potential of open agreements to address policy concerns among interested Members either in the form of co-ordinated improvements of their current schedules or, if not covered by existing treaty frameworks, as ‘WTO-extra’ understandings.

Accumulating Trade Costs and Competitiveness in Global Value Chains

Trade costs such as applied tariffs, transportation and insurance costs are amplified as they pass through the multiple production steps associated with modern supply chains. This socalled "cascade effect" arises since trade costs accumulate as intermediate goods are imported and then re-exported further downstream, going through different processing nodes before reaching the final consumer. Moreover, the financial impact of these trade costs is magnified in the "trade in tasks" rationale which governs global value chains (GVCs). Specialised processing firms need to recoup the associated trade cost applying to the full value of the good from the smaller fraction of value-added created at each consecutive productive stage. This large relative weight of transaction expenses on the profitability of individual business operations explains why trade along GVCs is particularly exposed to trade costs. The paper reviews the implications of trade costs on competitiveness at industry, national and global levels. The financial implications of trade costs at firm and sectoral level are based on trade in value-added data for 2011. The multilateral welfare effects of reducing discrete trade costs are identified using a network analysis approach, which goes beyond the traditional bilateral dimension of international trade and identifies where trade facilitation investment would have the highest social returns from a GVC perspective. The authors conclude that while the direct benefits of trade facilitation will be proportionally higher for those countries that are not well integrated into international trade because of their high trade costs, the global benefits of trade facilitation investments will also be high if they are undertaken by key traders that lie at the core of global value chains.

Why do Trade Finance Gaps Persist

Trade finance shortfalls now appear regularly. Does this matter for trade expansion and economic development in developing countries? Global trade finance has resumed following the 2009 global financial crisis. However, the pattern of recovery has been uneven across countries and categories of firms. The recovery has been robust for the main routes of trade and for large trading companies. By contrast, access to trade finance remains costly and scarce in countries which have the strongest potential for trade expansion. We introduce new data from a global survey of firms to argue that real shortfalls are exacerbated by perception gaps in a way that has enabled market failures to persist. This has troubling implications most directly through its effect on the ability for small firms to benefit from the reallocation of production and investment within global supply chains.

Implementing the Trade Facilitation Agreement

After a decade of negotiations and additional preparatory work, the WTO Trade Facilitation Agreement (TFA) is poised to enter into force. It promises to streamline and substantially prune the red tape that all too often slows and impedes international commerce - thereby significantly reducing both cost and time needed to do business across borders. The paper chronicles the path from the conclusion of the talks at the 2013 Bali Ministerial Conference to the present day as we prepare for the Agreement to take effect. It reviews the state of the ratification process, analyses implementation schedules and outlines work still to be done. The study shows that the emerging application of the TFA, like its negotiation, has once again confounded the sceptics – who first doubted that a TF Agreement would see the light of day and then questioned if it would ever be put into practice. While plenty remains to be done to implement the TFA across the full WTO membership, its entry into force is set to happen – a valedictory moment.

Typology of Environment-Related Provisions in Regional Trade Agreements

The last 25 years have witnessed a rapid increase in regional trade agreements (RTAs). Although RTAs generally aim at lowering tariff and non-tariff trade barriers, an increasing number of trade agreements extend their scope to cover specific policy areas such as environmental protection and sustainable development. This paper establishes a comprehensive typology and quantitative analysis of environment-related provisions included in RTAs. The analysis covers all the RTAs currently into force that have been notified to the WTO between 1957 and May 2016, namely 270 trade agreements. While environmental exceptions, along with environmental cooperation continue to be the most common types of environment-related provisions, many other different types of provisions are incorporated in an increasing number of RTAs. The common feature of all environment-related provisions, including environmental exceptions, is their heterogeneity in terms of structure, language and scope.

Provisions on Small and Medium-Sized Enterprises in Regional Trade Agreements

This paper reviews the different types of provisions explicitly addressing small and medium enterprises (SMEs), including micro firms (MSMEs), in regional trade agreements (RTAs). The analysis covers the 270 RTAs currently in force and notified to the WTO as of April 2016. The analysis shows that half of all the notified RTAs, namely 136 agreements, incorporate at least one provision mentioning explicitly SMEs. These SMEs-related provisions are highly heterogeneous and differ in terms of location in the RTA, language, scope and commitments. Many of the SMEs related provisions are only found in a single or couple of RTAs. A limited but increasing number of RTAs incorporate specific provisions in dedicated articles or even chapters on SMEs. Although the number of detailed SMEs-related provisions included in a given RTA has tended to increase in recent years, most SMEs-related provisions remain couched in best endeavour language. The two most common categories of SMEs-related provisions found in RTAs are provisions (1) promoting cooperation on SMEs and (2) specifying that SMEs and/or programs supporting SMEs are not covered by the RTAs' obligations provisions. Other types of SMEs-related provisions, incorporated in a limited number of RTAs, refer, inter alia, to government procurement, trade facilitation, electronic commerce, intellectual property, or transparency.

Understanding Trade in Digitized Ideas

Advances in information and communications technologies (ICTs) and new business models have widened opportunities for trade in digitized ideas, shaping global value chains and production networks in cultural or creative goods and services. However, much of this trade has eluded conventional categorization and new business models. In particular multinational firms have blurred the way international transactions can be recorded and how this can be transformed into relevant statistics for policy makers, research and for businesses themselves. Recent international statistical guidelines have suggested a number of improvements to better respond to policy information needs, including in the area of trade, innovation or culture. However, a number of questions remain unanswered. The objective of the paper is therefore to trace the conceptual and empirical statistical picture and assess the quality of existing statistics and the extent to which important trade in digitized ideas is inadequately measured. It discusses conceptual issues, and constraints encountered in gaining a full picture. A number of possible data collection and compilation solutions are suggested to enable a better understanding of this trade.

Estimating Trade Policy Effects with Structural Gravity

The objective of this manuscript is to serve as a practical guide for estimations with the structural gravity model. After a brief review of the theoretical foundations, we summarize the main challenges with gravity estimations and we review the solutions to address those challenges. Then, we integrate the latest developments in the empirical gravity literature and we offer six recommendations to obtain reliable partial equilibrium estimates of the effects of bilateral and non-discriminatory trade policies within the same comprehensive, and theoretically-consistent econometric specification. Our recommendations apply equally to analyses with aggregate and disaggregated data. Interpretation, consistent aggregation methods, and data challenges and sources for gravity estimations are discussed as well. Empirical exercises demonstrate the usefulness, validity, and applicability of our methods.

Trade, Testing and Toasters

Even if traders adapt to technical regulations and standards in an export market, they still must prove compliance by undergoing conformity assessment procedures (CAPs), such as testing, inspection, or certification. Duplication, delays or discrimination in CAPs can significantly increase trade costs, and this risk is reflected in the growing importance of CAPs in WTO discussions and bilateral and regional free trade agreements. This paper conducts an empirical study of the trade issues that WTO Members encounter with CAPs as described in specific trade concerns (STCs) raised in the WTO Committee on Technical Barriers to Trade (TBT) during 2010-2014. We observe that CAPs raise proportionally more concern among WTO Members than technical regulations do, and that testing and certification are the procedures that most frequently give rise to trade problems. Within the framework of the TBT Agreement, we find that questions around transparency and whether CAPs create unnecessary barriers to trade are the two most prominent issues highlighted by Members.

General Equilibrium Trade Policy Analysis with Structural Gravity

The objective of this manuscript is to serve as a practical guide for evaluation of the general equilibrium (GE) effects of trade policy using the structural gravity model. We try to achieve this objective in four steps. First, we focus on the original Armington-CES gravity model to offer a deep analysis of the structural relationships underlying the general equilibrium gravity system, and how they can be exploited to make trade policy inferences. Second, we present and discuss a series of indexes that can be used to summarize the GE effects of trade policy. Third, we summarize the standard procedures to perform counterfactual analysis with the gravity model, and we outline recent methods to obtain theory-consistent GE effects of trade policy. Finally, we demonstrate how gravity can be integrated with a broader class of general equilibrium models by nesting the Armington-CES model within a dynamic production superstructure with capital accumulation.

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Article Contents

I. trade as an important part of the solution, ii. trade has also been beneficial in other ways in recent years, iii. the wto’s contribution to global challenges, iv. an improved wto fit for the twenty-first century.

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The WTO’S Contribution to the Challenges of Global Commons

Director-General, World Trade Organization

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Ngozi Okonjo-Iweala, The WTO’S Contribution to the Challenges of Global Commons, Journal of International Economic Law , Volume 26, Issue 1, March 2023, Pages 12–16, https://doi.org/10.1093/jiel/jgad005

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Global trade can be an important part of the solution to modern global challenges, just as the rule-based multilateral trading system played an instrumental role in fostering peace and prosperity since its creation in 1947. Trade has been a lifeline for producing and accessing critical medical supplies from face masks to vaccines almost since the beginning of the pandemic; trade is also an important means for adapting to climate change as well as cutting emissions; and trade has helped net-food-importing countries faced with food crisis. For trade to be a part of solutions to the range of modern challenges, the role of the World Trade Organization (WTO) is indispensable, and it must be updated for it to remain fit for purpose. The continuing reinvention of the WTO will not be easy, but the outcomes of the 12th Ministerial Conference (MC12) are a good start. In this special contribution to the Journal of International Economic Law , I reflect on the WTO’s role for the twenty-first century and beyond and how the MC12 outcomes will serve as a foundation and a platform for Members to build on to reinvent the WTO.

Many of the simultaneous shocks facing the world economy today have their roots in challenges of the global commons spanning from public health to international security and the environment. The COVID-19 pandemic has reversed decades of steady poverty reduction and is leaving many poor countries behind in the economic recovery. The war in Ukraine, a crisis of international security, has provoked the worst food and energy crisis in decades and caused a sharp economic slowdown. And a climate crisis is manifested in various forms the world over, demanding an urgent action to protect and preserve the environment and our resources.

Global trade can be an important part of the solution to these challenges, just as the rule-based multilateral trading system has played an instrumental role in fostering peace and prosperity since its creation in 1947.

Open global markets, underpinned by the rules and norms of the multilateral trading system, made possible a wider division of labour, with increased specialization, scale, and competition. Predictable market access combined with innovations in transport and communications technology gave rise to the cross-border supply chains that are a defining feature of modern production and trade. For low-income families in advanced economies, one estimate suggests that trade has cut the price of the household consumption basket by two-thirds.

More importantly, many developing countries were able to use external demand to shift people and resources out of subsistence activities and into more productive work in tradable sectors. Because businesses could be reasonably sure that export markets would not unexpectedly slam shut, they had the confidence to invest in export-oriented production. The results were striking. In 1980, close to 40% of the world population lived in extreme poverty, on less than the equivalent of $1.90 a day. By 2019, before the pandemic, it was less than 10%. Trade helped lift a billion people out of extreme poverty. But the World Bank’s new Poverty and Shared Prosperity report shows that the pandemic pushed more than 70 million people into extreme poverty by the end of 2020 and as many as 685 million people could still be living in extreme poverty by the end of 2022.

Almost since the beginning of the pandemic, trade has been a lifeline for producing and accessing critical medical supplies from face masks to vaccines. Overcoming medical supply shortages and export bans in the early stages of the pandemic, cross-border supply chains subsequently became an engine for manufacturing and distributing masks, personal protective equipment, and, ultimately, vaccines. COVID-19 vaccines in particular are made in multi-country supply chains—19 countries each for the Moderna and Pfizer/BioNTech vaccines. Less trade would have almost certainly meant fewer vaccine doses and, consequently, less resilience and health security.

Global trade is also an important means for adapting to climate change as well as cutting emissions—importing supplies after a natural disaster, spreading cutting-edge technologies around the world, or fostering the competition that helps bring down prices. Trade and international competition have also helped drive down the cost of green energy to the point that it is sometimes cheaper than fossil fuel alternatives. The Intergovernmental Panel on Climate Change found that between 2010 and 2019, the unit cost of solar energy and lithium-ion batteries fell 85%, while that of wind energy fell 55%. Lower costs meant wider deployment through trade.

Concerning food security, trade comes to the rescue of net-food-importing countries as many countries do not have enough water and arable land to produce food for their populations. The Food and Agriculture Organization of the United Nations and the Organization for Economic Co-operation and Development estimate that one in five calories consumed around the world is traded across borders. Trade is necessary to move supplies of grain and fertilizer from where they are abundant to places where they have been withdrawn from the market. The Black Sea Grain Initiative, which enabled the resumption of Ukrainian grain exports via the Black Sea, is a laudable collective effort to prevent the current market tensions from turning into full-fledged food shortages resulting from the war in Ukraine.

For trade to be a part of solutions to a range of challenges posed to the global commons, the role of the WTO is indispensable. Using trade to promote sustainable development is literally written into the preamble of the WTO’s founding agreements from 1994. Alongside job creation and enhanced living standards, sustainability is seen as a key means by which trade and the WTO can help improve people’s lives. Based on these founding principles, the WTO provides a set of rules that apply equally to all; offers a forum for discussions and debates on trade measures and for negotiating new rules necessary for the twenty-first century; monitors trade flows and measures and shares information; and settles trade disputes among Members according to the agreed procedures.

Through two brutal stress tests—the 2008–2009 financial crisis and then the economic contraction caused by COVID-19—the global trading system has played its intended role of helping governments minimize protectionist pressures and avoid a repeat of the 1930’s experience.

The WTO also facilitated access to essential medical supplies and vaccines in response to the COVID-19 pandemic by using monitoring, transparency, and jawboning to bring down trade restrictions and working with vaccine manufacturers to identify supply chain bottlenecks and encourage the decentralization of vaccine manufacturing in more developing countries. Members were also able to reap the benefits of the Trade Facilitation Agreement, agreed in 2013, by making cross-border procedures faster and more efficient.

WTO Members actively use their Committee on Trade and Environment to discuss sustainable development. Since 2009, over 4500 of the measures notified to this Committee have had objectives related to climate mitigation and adaptation. Many of these are technical regulations for energy efficiency and other goals, but they also include direct taxes on carbon, green procurement requirements, and support programmes for renewable energy. Members learn from each other’s experiences, discuss each other’s measures, and address potential trade irritants arising from them.

Faced with sustainability challenges that go beyond what the WTO’s architects could have imagined back in 1994, large groups of WTO Members are taking forward new environmental initiatives at the WTO. Such initiatives concern issues on climate change, environmental goods and services, circular economy, sustainable supply chains, greening aid for trade, and the environmental impacts of farm subsidies. More than 80 Members representing over 85% of global trade, including the European Union, China, and the USA, are part of at least one of these initiatives. Over half of them are developing countries. These initiatives are a sign that countries see trade, trade policy, and the WTO as central components of their environmental sustainability efforts. They complement inclusion-oriented initiatives seeking to better equip women and micro-, small-, and medium-sized enterprises to benefit from global trade.

Building on the sense of urgency for action and momentum presented by these multiple crises, WTO Members delivered historic outcomes at the Twelfth Ministerial Conference in June 2022 by signing onto a number of agreements responding to urgent global challenges.

Members worked across geopolitical lines to agree on curbing harmful fisheries subsidies, delivering only the second new multilateral WTO agreement since 1995—and the first WTO agreement ever to put environmental sustainability at its core. Fisheries subsidies—estimated average about USD 22 billion per year globally—enable many fishing fleets to operate longer and farther at sea to the detriment of marine life. The global rules struck at MC12 prohibit subsidies for illegal, unreported, and unregulated fishing as well as for fishing of overfished stocks while recognizing the needs of fishers in developing and least-developed countries. This is a significant first step forward to curb subsidies for overcapacity and overfishing.

As a further response to the COVID-19 pandemic, WTO Members agreed to waive certain requirements under the Agreement on Trade-related Aspects of Intellectual Property Rights concerning the use of compulsory licences to produce COVID-19 vaccines. This agreement will help deconcentrate and diversify vaccine manufacturing capacity so that a crisis in one region does not leave others cut off. The declaration by WTO Members on the WTO response to the current and future pandemics will make access to medical supplies and components more predictable in this and future pandemics.

WTO Members also decided to exempt humanitarian food purchases under the World Food Programme from export restrictions. This will help get food to millions of the world’s most vulnerable people more cheaply and easily. They also pledged their strong commitment to take concrete steps to facilitate trade as the emergency response to food insecurity and to improve the functioning and resilience of global food markets.

All of this was a groundbreaking achievement for the WTO, proving that the WTO can indeed contribute to finding solutions to the challenges of global commons.

Despite this latest success, the WTO has been facing some strong pushback from both developing and developed economies over the recent years. There is no denying that the WTO is not perfect, just like any other organization, and can further improve to deliver more for people and the world.

Where the WTO has fallen short are socioeconomic exclusion and responsiveness to changing economic and environmental circumstances.

Although trade has been a powerful force for poverty reduction, too many people have been left behind: poor and lower–middle-class people in rich countries and a large number of poor countries that have remained on the margins of the global division of labour. In rich countries, exclusion has led to populist, nationalist, and protectionist sentiment.

Particularly, in advanced economies, much of this exclusion was also the result of poor domestic policy choices. Trade contributed to improvements in purchasing power and consumer choice and the ability to source inputs for goods and services from around the world, making businesses more productive and competitive. However, underinvestment in active labour market policies and social safety nets meant that workers were not equipped to take advantage of new opportunities; many workers lacked security in the face of economic dislocation. And while imported goods and services and the disappearance of certain manufacturing jobs were a visible scapegoat for that dislocation, a big culprit was also technological change.

It is undeniable that trade could have been a stronger instrument for economic inclusion. The WTO system could have done more to reduce trade costs for businesses of all sizes and help micro-, small-, and medium-sized enterprises, and women-owned businesses tap into regional and global value chains. WTO Members could have delivered better on a mandate to improve the flexibilities in the rulebook aimed at helping struggling countries participate more effectively in global trade. The multi-trillion-dollar, multi-decade global push we need for a successful low-carbon transition could give rise to what some have dubbed ‘greenflation’ in key raw materials and inputs. Cooperation on trade could help identify and address supply bottlenecks and ensure green investment remains as cost-effective as possible.

The glacial pace of WTO rulemaking also meant that the global trade rulebook was left behind by developments in the global economy.

These shortcomings, nevertheless, do not mean that we should walk away from the WTO and from the multilateral trading system. That would be throwing the baby out with the bathwater. The WTO is not alone among multilateral agencies needing to evolve and modernize—the World Bank and International Monetary Fund, for instance, are also searching for ways to reinvent themselves to meet twenty-first-century problems.

To meet the challenges we face, from climate change to food security and socioeconomic inclusion, we need global solidarity anchored in multilateralism, we need the multilateral trading system, and we need the WTO. The multilateral trading system is itself a global public good. One we should nurture and invest in. One we should not forget has been built up over time.

That is why the success of our Twelfth Ministerial Conference was so important. Despite the widespread scepticism about the WTO’s ability to deliver, WTO Members showed that they were capable of responding to emergencies and urgent global issues.

And just as importantly for the WTO’s future, Members also launched a process of institutional reform, recognizing that all of the organization’s core functions, negotiation, monitoring, and dispute settlement need to be updated for the WTO to remain fit for purpose.

The strong MC12 outcomes will, without doubt, become a foundation—a platform—for Members to build on to reinvent the WTO:

One, to make the multilateral instrument for negotiations more effective, so that talks do not drag on for years without end.

Two, to complement the multilateral track with plurilateral agreements and other important negotiating instruments among like-minded Members, who are working on new rules to underpin the digital economy as well as to facilitate foreign direct investment.

Three, to improve special and differential treatment, with more successful developing countries opting out so that flexibilities can be concentrated on those that need them most.

Four, to use the WTO as a forum to accelerate a just, rapid, and cost-effective low-carbon transition.

Five, to forge rules and new agreements that make it easier for women and micro-, small-, and medium-sized enterprises to be included in regional and global value chains.

And six, to meet WTO Members’ target of restoring dispute settlement to full functionality by 2024.

These changes, among others, are about making the WTO fit for the twenty-first century. The continuing reinvention of the WTO will not be easy. It will demand open-mindedness, compromise, and the political will to focus on long-term interests. WTO Members have already resumed their work to implement the outcomes of MC12 and will keep on working until the organization is reinvented—and more importantly, until it is put into a continuous change mindset that keeps pace with the rapid changes of the twenty-first century and beyond.

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New Policies for Brazil's ICT Industry after the WTO Determination: Assessing Distinct Impacts in a Dynamic CGE Model

42 Pages Posted: 8 Jun 2024

Marina Alves Martins

Federal University of Juiz de Fora

Rosa Livia Montenegro

Admir antonio betarelli junior.

In general, governments promote policies to support research and development (R&D) aimed at generating economic growth. In this sense, the Informatics Law was instituted in Brazil in 1991. It granted discounts on the tax on industrialised products (IPI) to companies in the Information and Communication Technologies (ICT) sector that invested a certain amount in R&D. A new Information Technology Law started to grant tax credits and more rigidly inspect its counterpart in investments in R&D. Therefore, this study aims to analyse the possible macroeconomic and sectoral impacts of the changes. The simulations are performed by a dynamic computable general equilibrium (CGE) model, which recognises the stock-flow relationship between investment in R&D and knowledge capital. It concludes that the resumption of IPI collection would trigger negative effects on the main macroeconomic indicators. However, the compensatory mechanisms incorporated in the new law would be efficient in reversing the losses and generating additional gains. The ICT sectors that benefited the most were those directly affected by the policy, that is, the machinery and mechanical and electrical equipment manufacturing sectors, belonging to the medium-high technology group, and the computer equipment, electronic and optical products manufacturing sectors in the high technological intensity group.

Keywords: Informatics Law, Research and Development, Computable General Equilibrium

Suggested Citation: Suggested Citation

Federal University of Juiz de Fora ( email )

Admir antonio betarelli junior (contact author), do you have a job opening that you would like to promote on ssrn, paper statistics.

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