Emerging economies and wto tariff liberalisation after doha – the financial express

Given the end of the Doha Round as we have known it, a major rethink of the WTO’s tariff-cutting approach is in order. Trade payable definition What might tariff liberalisation negotiations for emerging economies look like if economists, instead of actual trade policy negotiators, established the agenda and negotiating priorities?

Applying the economists’ classic beggar-thy-neighbour approach: The dominant terms-of-trade theory of trade agreements provides a compelling and simple insight that has shaped our understanding of the post-war trading system.

The tariff drives down the price that the partners’ exporters receive for selling their goods in international markets; the costs arise because the importer has market power.


In the absence of a trade agreement that imposes discipline over trade policy, the government of each individual country with market power would levy such a beggar-thy-neighbour tariff. The definition of trade winds The result is the classic, terms-of-trade driven prisoner’s dilemma.

The WTO can potentially solve the prisoner’s dilemma problem by facilitating reciprocal policy actions; however, the solution may not result in trade that is completely free.

First, an elegant design feature of the GATT/WTO is recognition that every country is not only an importer (and thus an imposer of externalities), but also an exporter (and thus a sufferer of such externalities). Trade marketing definition The WTO works by getting one country to cut a tariff on its imports just as its trading partner is reciprocally cutting a tariff that affects its exports.

However, a second and crucial implication of the Bagwell and Staiger (1999) theory is that the continued existence of non-zero applied tariffs is not, by itself, evidence that the WTO’s reciprocal, match-making performance is incomplete. Trade out definition The WTO’s performance is only incomplete if the tariffs that remain high are because the importing country is continuing to exert its market power.

Under this theoretical framework, identifying emerging economy tariffs for the WTO to cut would require evidence linking high tariffs with the importing country’s own market power.

The growing evidence of the WTO’s impact and implications for emerging economy tariffs: Increasingly evidence finds that the WTO has been able to remove much, but not all, of the terms-of-trade externalities from the tariffs that its members impose. Trade off economics definition However, one initial limitation of this literature was that the early papers focused on a relatively small sample of WTO members—either recent WTO accession countries or members with relatively higher incomes.

To show the relevance of this WTO theory for reducing currently applied tariffs, new evidence is needed that would link emerging economy tariffs to their market power.

The new research investigates three specific areas where emerging economy tariffs are frequently alleged to be “too high,” including the applied tariffs for countries where tariff binding legal commitments are so high, they are essentially meaningless; whose products remain legally unbound under the WTO; and who are not yet members of the WTO.

WTO members with tariff overhang and the resulting problem of applied tariffs: The evidence in my paper suggests the WTO may be best positioned to address the high applied tariffs for countries with substantial “tariff overhang,” which is defined as the difference between a country’s WTO legally binding upper-limit for its tariff and its currently applied MFN tariff rate.

My econometric approach is to use the product-level inverse foreign export supply elasticities provided in Nicita et al (2013) in order to assess whether there is empirical evidence linking currently applied tariffs for 45 emerging economies with these measures of their import market power. Free trade economics definition The results confirm that a strong positive correlation continues to link applied tariffs and market power for these countries. Trade and industry definition Furthermore, the evidence is primarily found in non-agricultural products, and thus would seemingly be most relevant for new non-agricultural market access (NAMA) negotiations.

Reducing legal binding commitments to currently applied tariff levels is not enough: Earlier negotiating proposals floated the idea that countries simply bind their tariffs at currently applied rates in order to eliminate the tariff overhang. What is trade finance definition It is worth noting that this proposal would not address the problem identified by the results described here.

The evidence here is that currently applied tariffs are “too high” because they do not take into consideration the terms-of-trade externality. Barriers to trade definition Even if negotiations eliminated all of the tariff overhang, the beggar-thy-neighbour component to the applied tariffs for these emerging economies would still remain.

There are 45 emerging economies that currently average more than 15 percentage points of tariff overhang and that form the sample for the regression exercise.

* First, the list includes many members of the Group of 20 (G20); for example, Argentina, Brazil, India, Indonesia, Mexico and Turkey, and thus countries with leadership potential to influence the future of the multilateral system.

* Third, it is important to reiterate that this result does not imply that each of these countries’ non-zero tariffs is imposed with market-power motives in mind. Trade investment means This is an average result; more work is needed to identify specific products as well as potential reciprocal trading partner matches.

* Fourth, in retrospect, of course, the tariff overhang problem came into being via the manner through which these countries joined the WTO. Definition of domestic trade Most all joined during the first wave of entrants in 1995; countries that have acceded since 1998 were not permitted such tariff overhang and thus could not continue to impose beggar-thy-neighbour tariffs via their applied MFN rates.

* Fifth, worth highlighting are the countries notably absent from this list. Definition of terms of trade In particular, available evidence for recent accession countries, including China and Russia, suggests that WTO accession neutralised the terms-of-trade component of their tariffs. Fair trade definition ap human geography Because exporting firms in trading partners are therefore not worried about the terms-of-trade impacts of their applied tariffs, such countries would not be priority negotiating invitees when seeking to identify reciprocal tariff cuts.

Negotiating implications: While the WTO may still have substantial tariff liberalising “work” to do, identifying precisely where the work is to be done may make for a more fruitful set of negotiations the next time around.

On average, the evidence from economic research suggests a strong positive correlation remains between a number of emerging economies’ applied tariffs and their import market power.

Given this result, one proposal is to allow these emerging economies the same basic framework for reciprocal tariff cutting negotiations amongst one another—with the tariff cuts then extended to the full WTO membership on an MFN basis—just as the GATT system established in 1947 and that the high-income countries successfully relied upon during the subsequent decades up until the establishment of the Doha Agenda in 2001.

Finally, there are other practical reasons to bring these emerging economies’ applied tariffs into the ambit of future WTO negotiations. Trade off economic definition Very few are involved in the mega-regional clubs of the TPP, the RCEP or FTAAP negotiations, and they are certainly not a part of the T-TIP negotiations between the US and EU. Trade economy definition The WTO may be their own best bet at finding a forum to extract themselves from their current terms-of-trade driven prisoner’s dilemmas.

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