Preferential Trade Liberalization and the Path-Dependent Expansion of Exports

In the presence of sunk costs to exporting, preferential tariff liberalization may have a prolonged, dynamic effect on the pattern of a beneficiary country's exports. In particular, preferential tariff liberalization might trigger a geographic spread of exports to third markets outside the preferential trading area. I test this hypothesis for the pattern of Mexican exports after the inception of NAFTA to several Latin American trading partners. After controlling for product specific shocks and the overall trend in export growth, the evidence is consistent with the hypothesis that initial exports to the United States further prompted exports to third markets. The results suggest a significant impact on exports to large or geographically proximate countries (Argentina, Brazil, Peru, Costa Rica, Guatemala, Honduras and Panama). The stunning growth in the extensive margin as a count measure owes much to rather simple goods, while more sophisticated goods exert a substantial impact on the value of Mexican exports. The findings also document the existence of considerable tariff-induced trade diversion for goods with little skill or technology content.Preferential tariffs, Mexico, NAFTA, sunk costs, conditional logit panel estimation

Services trade in the UK: what is at stake?

Services trade is often regarded as a niche or specialty but in fact it constitutes a sizable share of overall trade and is economically significant in many respects. Whilst the financial sector is arguably an area of specialisation in the UK, trade in business services is quantitatively even more important. Services trade covers more than the international exchange of digitised services, it also encompasses investment flows as well as the movement of consumers and service professionals. The UK runs a sizable trade surplus in cross-border services trade and is an attractive location for foreign investment. As a result of this revealed comparative advantage, the surplus from cross-border services trade partly offsets the trade deficit in the realm of merchandise goods. More than half of the value added of UK total exports in 2011 consisted of domestic services. Brexit negotiations should seek to preserve the conditions that currently sustain this favourable situation, particularly as services are becoming increasingly important for the performance of the UK’s manufacturing base and its trade competitiveness. The EU Single Market for services may be imperfect but it goes a long way towards facilitating the exchange of services amongst members. Thus, Brexit will almost surely be associated with a deterioration in market access conditions for UK providers; however, the extent of that change is difficult to gauge for two reasons. First, applied services trade policies in the areas of cross-border trade, investment, and movement of people are typically more liberal than what the WTO’s General Agreement on Trade in Services (GATS) commitments would prescribe. Second, unlike for goods trade, there is no uniform EU services trade regime for suppliers from outside the EU. Hence, upon leaving the EU access to EU markets for UK service providers is likely to deteriorate in a way that differs across EU member states, sectors, and modes of supply

Trade diversion under selective preferential market access

Through its diverse trade preference schemes, the European Union provides different groups of developing countries with different degrees of market access. This paper is the first to demonstrate empirically that such staggered market access induces sizable trade diversion to the detriment of relatively less preferred beneficiary countries. In particular, preferences granted to African, Caribbean and Pacific economies are shown to impair the export performance of seven developing countries whose products only qualify for basic preferences under the Generalized System of Preferences. Exports to the European Union decline by about 30 percent if the African, Caribbean and Pacific tariff falls by 10 percentage points. In terms of forgone trade volume, losses for these relatively disadvantaged countries amount on average to 9 percent of their total trade with the European Union, depending on the country and its main exports. These intra-developing country distortions are driven by highly substitutable, often labor-intensive commodities.Free Trade,Trade Policy,Trade Law,Debt Markets,International Trade and Trade Rules

Dark costs, missing data: shedding some light on services trade

A structural gravity model is used to estimate barriers to services trade across many sectors, countries and time. Since the disaggregated output data needed to flexibly infer border barriers are often missing for services, we derive a novel methodology for projecting output data. The empirical implementation sheds light on the role of institutions, geography, size and digital infrastructure as determinants of border barriers. We find that border barriers have generally fallen over time but there are differences across sectors and countries. Notably, border effects for the smallest economies have remained stable, giving rise to a divergent pattern across countries

Landlocked or policy locked ? how services trade protection deepens economic isolation

A new cross-country database on services policy reveals a perverse pattern: many landlocked countries restrict trade in the very services that connect them with the rest of the world. On average, telecommunications and air-transport policies are significantly more restrictive in landlocked countries than elsewhere. The phenomenon is most starkly visible in Sub-Saharan Africa and is associated with lower levels of political accountability. This paper finds evidence that these policies lead to more concentrated market structures and more limited access to services than these countries would otherwise have, even after taking into account the influence of geography and incomes, and the possibility that policy is endogenous. Even moderate liberalization in these sectors could lead to an increase of cellular subscriptions by 7 percentage points and a 20-percent increase in the number of flights. Policies in other countries, industrial and developing alike, also limit competition in international transport services. Hence,"trade-facilitating"investments under various"aid-for-trade"initiatives are likely to earn a low return unless they are accompanied by meaningful reform in these services sectors.Transport Economics Policy&Planning,Markets and Market Access,Public Sector Corruption&Anticorruption Measures,Economic Theory&Research,ICT Policy and Strategies

Go ahead and trade: The effect of uncertainty removal in the EU’s GSP scheme. ESRI Working Paper 691 December 2020.

We estimate the trade effect of removing uncertainty about future trading conditions in the context of the 2014 reform of the Generalized System of Preferences (GSP) of the European Union (EU). EU GSP members receive non-reciprocal trade preferences (NRTPs), but only as long as they are not too competitive; i.e. they will graduate in case their share of EU GSP imports in a sector exceeds a certain threshold. However, the 2014 reform removed the threat of these competitiveness-related graduations for members of the so-called “GSP+”, a sub-scheme of the main programme. We find that the reform increased EU imports from GSP+ countries by about 45% on average whilst tariffs stayed the same. This trade impact is driven by the country-sector pairs most exposed to NRTPs uncertainty prior to the reform. The effect is robust to taking into account other aspects of the reform, such as the reduction in GSP membership and changes in tariff margins, respectively

Trade policy, openness, and development: essays in honour of L. Alan Winters

Alan Winters was the editor of the World Trade Review (WTR) from December 2008 to mid-2020. Launched in 2002 as a joint initiative of the WTO Secretariat and Cambridge University Press, the WTR has become the leading multidisciplinary journal in the field of international trade broadly defined. In the period during which Alan was editor of the journal, the number of issues grew from three to five, reflecting the significant increase in the number of quality submissions. The impact factor of the journal rose to 1.6 in 2020, an increase by 150%, above that of The World Economy, arguably the incumbent in the field when the WTR was created. Multidisciplinary journals confront greater challenges than single discipline journals in attracting high-quality scholarship. The fact that the WTR has become firmly established as a leading journal in the field of international trade law, policy, and political economy is a tribute to Alan’s support for multidisciplinary research. He actively encouraged contributions by legal scholars and practitioners, and supported collaboration between lawyers, economists, and political scientists. An annual special issue of articles assessing the WTO’s dispute settlement case law, co-authored by lawyers and economists, the product of a long-running project led by Chad Bown, Henrik Horn, and Petros Mavroidis, is a prominent example. It is not a coincidence that the group who came together for the Festschrift Conference1 that was the genesis of this special issue comprised economists, lawyers, and political scientists

The World Trade Organisation: a safety net for a post-brexit UK trade policy?

By electing to leave the European Union, the United Kingdom has chosen, among many other things, to leave the customs union and the single market that includes all member states and reassert its status as an individual member of the World Trade Organisation (WTO). In doing so it will take sole responsibility for the control and governance of its external trade policy with all other WTO members (including the EU) within the framework of WTO rules. This Briefing Paper aims to explore the nature of those WTO commitments and how they might impact the UK from the yet-to-be-set date of the UK’s exit from the EU (B(rexit)day)

The pursuit of non-trade policy objectives in EU trade policy

The European Union (EU) often conditions preferential access to its market on compliance with Non-Trade Policy Objectives (NTPOs), including human rights and labor and environmental standards. In this paper, we first systematically document the coverage of NTPOs across the main tools of EU trade policy: its (association and non-association) trade agreements and Generalized System of Preferences (GSP) programs. We then discuss the extent to which the EU can use these tools as a ‘carrot-and-stick’ mechanism to promote NTPOs in trading partners. We argue that, within trade agreements, the EU has limited scope to extend or restrict tariff preferences to ‘reward good behavior’ or ‘punish bad behavior’ on NTPOs, partly because multilateral rules require members to eliminate tariffs on substantially all trade. By contrast, GSP preferences are granted on a unilateral basis, and can thus more easily be extended or limited, depending on compliance with NTPOs. Our analysis also suggests that the commercial interests of the EU inhibit the full pursuit of NTPOs in its trade agreements and GSP programs