Trade Policy Reforms Research Articles

Trade Policy in Burundi: Reform Without Political Stability

This paper evaluates Burundi's progress with trade policy reform, by comparing earlier analyses of Burundi's trade policies undertaken in the 1980s with that of the WTO's recent Trade Policy Review. Since the mid‐1980s Burundi has been trying to reform its trade and macroeconomic policies against the background of continuous socio‐political tensions and periodic outbreaks of violent tribal conflict. A ‘then and now’ comparison allows us to assess both the extent of the trade reforms and of the economic return to those reforms. It is evident that there has been a significant rationalisation and simplification of trade policy. Burundi has eliminated most quantitative import restrictions and reduced the average level and range of its tariffs. The scope for allocative distortions, undesirable redistributive effects and for impediments to investment and growth has been substantially reduced. However, a return to reform in terms of export growth or diversification and of overall economic growth is not discernible yet. This is unsurprising, given the scale of the economic disruption. Sustained socio‐political stability, among other things, will be required to induce the investment in human and physical capital needed for a positive return to trade policy reform.

A spatial equilibrium analysis of trade policy reforms on the world wheat market§

Since a few countries produce most of the world's wheat, and consumption is widespread across the world, wheat is one of the most commonly traded agricultural commodities. In recent years, the wheat market has been going through difficult phases as wheat prices are depressed. The fall in wheat prices is attributed to a supply glut and restrictive trade barriers. This study develops a large-scale spatial equilibrium trade model for wheat to analyse the effects of removing trade barriers (tariffs and subsidies) on each country's/region's price, supply, demand, trade, welfare, and bilateral trade flows. The results show that trade liberalization leads to an increase (decrease) in prices in the exporting (importing) countries. Production and exports increase in the exporting country, and consumption and imports increase in the importing country. Consequently, the volume of trade also increases. The welfare of most countries rises, and thus, world welfare also rises.

Economic Partnership Agreements Between Sub‐Saharan Africa and the EU: A Development Perspective

This paper draws on Hinkle and Schiff (2003). It analyses the planned Economic Partnership Agreements (EPAs) between the EU and Sub‐Saharan Africa (SSA) from a development perspective. It does not take a position on whether SSA should enter into EPAs with the EU. Rather, it starts from the notion that the process of forming EPAs is unlikely to be reversed and examines the conditions that will maximise SSA's benefits from the EPAs. If this notion is correct, then the analysis presented in the paper applies. On the other hand, Pascal Lamy, the EU Trade Commissioner, made a proposal at the May 2004 G‐90 summit in Dakar that might lead to a change in the EPA process. He proposed that the G‐90, a group consisting of ACP and non‐ACP LDC countries, should not have to make concessions at the WTO Doha Round of multilateral trade negotiations, i.e., he proposed a ‘free round’ for the G‐90. This proposal opens the door to the possibility that the same might apply to the ACP countries in the EU‐ACP negotiations and that the EPA process might be reversed. The paper considers the key issues raised by the planned EPAs, their relationship to the WTO's Doha Round and the EU's Everything‐but‐Arms Initiative, the changes needed to make the EPAs internally consistent, the domestic reforms in SSA that would need to accompany trade liberalisation in both goods and services, and the potential effects of the EPAs on regional integration in SSA. The EPAs will pose a number of policy challenges for SSA countries, including: restructuring of indirect tax systems, reduction of MFN tariffs, liberalisation of service imports on an MFN basis and related regulatory reforms in the services sector, and liberalisation of trade in both goods and services within the regional trading blocs in SSA. The paper also finds that the EPAs provide an opportunity to accelerate regional and global trade integration in SSA. To realise the potential development benefits of the planned EPAs, two steps are essential. First, the EU must, as it has stated, truly treat the EPAs as instruments of development, subordinating its commercial interests in the agreements to the development needs of SSA. Second, the SSA countries need to implement a number of EPA‐related trade policy reforms. However, the latter is far from certain, given the lack of reform momentum in SSA.

Challenges in Modeling the Effects of Trade Agreements on the Agricultural Sector

Major issues and challenges encountered in modeling and analyzing agricultural and trade policy reforms are reviewed. We focus on modeling approach and pay special attention to the type and scope of models, calibration of a realistic baseline scenario, representation of the reform agreement, use of extramodel information, choice of metrics to measure reform impacts, and emerging issues in policy modeling. Existing solutions and unresolved issues are examined. We stress the complementarity of various modeling approaches in assessing policy reforms and the importance of helping users understand the limitations of the chosen approach.

Trade Liberalisation and Economic Performance in Developing Countries – Introduction

One of the most prominent features of the world economy over the last fifty years, and particularly in the last twenty years, has been the liberalisation of international trade and payments under the auspices of the GATT (and now the WTO), the IMF and the World Bank (as part of conditionality and Structural Adjustment Programmes). This is one of the reasons why world trade has grown nearly five times faster than world output and probably why the GDP of most countries has generally been impressive by historical standards, at least compared to the miserable experience of the years between the two great wars. The purpose of this Feature is to explore in depth some aspects and consequences of the liberalisation process that affect the overall economic performance of countries, and the welfare of peoples within countries. There has been a good deal of work on the relation between trade liberalisation and economic growth, which has recently come under critical scrutiny from Rodriguez and Rodrick (2000), but much less work on other aspects of liberalisation such as the monetary (balance of payments) consequences of trade liberalisation and the impact of liberalisation on income inequality and the wage structure in developing countries. Moreover, what are the necessary economic and institutional conditions for liberalisation to be ‘successful’ in enhancing economic performance and the welfare of people? This last issue is addressed in the first paper by Alan Winters who argues that trade liberalisation by itself is unlikely to boost economic growth very much, unless openness reduces corruption and is accompanied by improved macroeconomic policy-making. He details the difficulties in interpreting econometric studies which purport to find a strong causal link between trade liberalisation and growth or total factor productivity. On the other hand, there is no coherent body of evidence that openness is bad for growth. He concurs with Rodriguez and Rodrick’s (2000) concern that the priority given to trade reform may generate expectations that are unlikely to be met without complementary measures, and may delay other institutional reforms which would have a greater impact. In other words, trade policy reform cannot be regarded as a panacea and a substitute for a comprehensive development strategy. Winters then goes on to consider the other growth-enhancing policies that must be involved if trade liberalisation is to confer benefits. The fight against corruption is one vital ingredient, with liberalisation reducing the scope for rent-seeking opportunities. Greater openness can also be a safeguard against inflation and a stimulus to investment. But investment requires incentives, adequate financing mechanisms, a framework of property rights and, above all, The Economic Journal, 114 (February), F1–F3. Royal Economic Society 2004. Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

Trade Liberalization and Poverty: The Evidence So Far

This paper assesses the current state of evidence on the impact of trade policy reform on poverty in developing countries. There is little empirical evidence addressing this question directly, but a lot of related evidence on specific aspects. We summarize this evidence using an analytic framework addressing four key areas: economic growth and stability; households and markets; wages and employment and government revenue. Twelve key questions are identified and empirical studies and results are discussed. We argue that there is no simple generalizable conclusion about the relationship between trade liberalization and poverty, and the picture is much less negative than is often suggested. In the long run and on average, trade liberalization is likely to be strongly poverty alleviating, and there is no convincing evidence that it will generally increase overall poverty or vulnerability. But there is evidence that the poor may be less well placed in the short run to protect themselves against adverse effects and take advantage of favorable opportunities.

China's Accession to the World Trade Organization, Policy Reform, and Poverty Reduction: An Introduction

China's accession to the World Trade Organization (WTO) was a watershed event for both China and the WTO. After 30 years of effective isolation from the world economy, and close to a quarter century of autonomous reforms, China joined the legal framework of the world trading system. In doing so China made an extraordinarily wide-ranging set of commitments to reform of its own legal and administrative system and to thorough-going liberalization of trade in goods and services. This issue contains five studies from a major project undertaken by the World Bank and the Development Research Centre of China's State Council. A key objective of the studies was to assess the impact of the reforms associated with WTO accession on poverty in China, particularly in rural areas, which now lag so badly behind urban areas.

Determinants of Trade Policy Reform in Sub-Saharan Africa

Existing studies of trade reform in Sub-Saharan Africa (SSA) -- and elsewhere -- are mainly qualitative in character, partly because of the difficulty of measuring the intensity of trade liberalisation. This paper uses a quantitative measure of trade liberalisation to provide statistical evidence on the conditions accounting for Africa's timid reforms. This measure captures the change in the tariff equivalent of all trade barriers and is therefore a summary indicator of the intensity of reform. The measure provides a fairly accurate description of the trade liberalisation experience of SSA countries, indicating that the most significant reforms occurred during the period 1986--90. The empirical model includes a set of hypotheses suggested both by theory and the anecdotal evidence of Africa's liberalisation experience. The empirical methodology distinguishes between the conditions that affect the likelihood of reform and the factors that determine the intensity of trade liberalisation. The empirical results justify this distinction. The findings suggest that larger aid flows, higher levels of urbanisation, a strong current account position and a relatively large manufacturing sector enhance the probability that trade reform is adopted. There is also some evidence that economic crises facilitate reform. Conversely, heavier fiscal dependence on trade taxes, greater import competition and a large government make trade reform less likely. However, only five of these factors -- current account balance, size of manufacturing sector, size of government, fiscal dependence on trade taxes and aid -- are found to exert a statistically significant effect on the intensity of trade reform. Copyright 2003, Oxford University Press.

Trade Liberalization and Innovation Decisions of Firms: Lessons from Post-1980 Turkey

Determinants of innovation decisions of Turkish manufacturing firms are estimated for 1989–93, with an emphasis on determinants that are linked to trade policy reforms of the 1980s. Using plant-level data, we find that positive effects of trade liberalization on innovation decision are transmitted mainly through technology embodied in imported machinery. Being a technology licensee, an exporter, or having a foreign partner does not exert a significant positive effect on a firm’s probability to innovate, nor do technology spillovers due to the presence of foreign firms in the Turkish manufacturing industry.

Effective Protection, Policy Appraisal and Trade Policy Reform

When the effective protection concept was first developed it was widely regarded as a key measure of the structure of protection and became widely deployed. It was however subject to a theoretical critique on the grounds that it was essentially a partial equilibrium measure, which could not be easily embedded in a general equilibrium framework. Notwithstanding this critique, the concept has continued to be widely used, especially in the context of policy reform and policy appraisal in developing countries. This paper re-appraises the concept, reviews the extent of its application and discusses the factors behind its longevity as an investigative tool. The paper concludes that the measure still has a role to play in evaluating the structure of protection.

Trade Liberalization and the Poor: A Framework for Poverty Reduction Policies With Special Reference to Some Asian Countries Including India

The paper examines the impact of trade liberalization on the poor through its impact on prices and incomes. A simple framework is developed which traces the impact of trade liberalization on the poor. Some guidelines are given for making trade work for the poor after identifying how the trade regime works. The paper also discusses necessary complementary policies that can make trade policy reform effective. These complementary policies include among others: macroeconomic and microeconomic stability, a competitive exchange rate, flexible labor markets and competent product markets. Also, there is large outstanding agenda that can and should be undertaken by high-income countries that will generate significant benefits for ordinary people in developing countries. These include trade distorting policies in agriculture, disciplining non-tariff measures that restrict trade and removing restrictions on the temporary movement of natural persons supplying services (Stern, 2002). The success of trade reform lies in focusing the reform agenda on agricultural and services sector. It is imminent from the study that these two sectors are key sectors in poverty reduction. The paper provides the basic elements of a good trade policy regime. These provide a benchmark against which to judge the prevailing trade regime and provide guidance for the direction of reforms for the poor in future.

Effective Protection, Policy Appraisal and Trade Policy Reform

When the effective protection concept was first developed it was widely regarded as a key measure of the structure of protection and became widely deployed. It was however, subject to a theoretical critique on the grounds that it was essentially a partial equilibrium measure, which could not be easily embedded in a general equilibrium framework. Notwithstanding this critique, the concept has continued to be widely used, especially in the context of policy reform and policy appraisal in developing countries. This paper re‐appraises the concept, reviews the extent of its application and discusses the factors behind its longevity as an investigative tool. The paper concludes that the measure still has a role to play in evaluating the structure of protection.

Measuring Effects of Trade Policy Distortions: How Far Have We Come?

After a brief review of the literature to the early 1970s, this paper assesses the contributions by economists during the past three decades to measuring the distortionary effects of trade policies. It does not pretend to be a comprehensive survey, but draws on selections from the literature that give a sense of the distance the profession has travelled from a trade policy practitioner's viewpoint since Corden's first paper on the subject in 1957. Phenomenal though that progress has been, there is ample room for further improvement in computing the economic (and other) effects of trade‐related policies and their reform. The paper concludes with suggestions of where the priorities should be in global modelling of trade policy reform, as the world moves into the next round of multilateral trade negotiations.

Processed food trade and developing countries: protection and trade liberalization

Exports of processed foods from developing countries have expanded rapidly in recent times, contributing to their economic development. Recent published research has shown that the export policies and agricultural resource endowment of the developing country offer significant explanations for this export growth. But what if developing countries further lowered their tariff barriers against imports? What impact would such policy changes have on processed food exports from developing countries? Alternatively, what if processed food trade barriers are lowered in developed countries? And if trade in manufactured goods were to be further liberalised, what might be the impacts on the processed food sectors of developing countries? An applied general equilibrium model is used to shed light on these questions through simulations of trade policy alternatives. Most developing regions examined had a positive effective protection rate for processed foods in the base year. This effective protection was lowered when such countries reduced their agricultural tariffs. When tariff cuts were extended to manufactured goods, effective protection of food processing in most developing regions increased somewhat, but was still less than base-period protection. For the developing countries, it would appear that comprehensive trade policy reforms, taken by themselves, are about as significant as those of the developed world in terms of contributing to growth in processed food exports from developing countries. Such reforms allow those developing countries with a comparative advantage in food production to expand exports and to take advantage of increased access to other developing countries with a less favourable agricultural resource endowment, as well as to developed country markets.

WTO and services sector reform: evidence from United Arab Emirates

A compelling body of literature suggests that trade policy reforms under the influence of WTO in a cross-section of countries have paved the way for the international economy to become increasingly interdependent (James, 1994 and Koppel, 1992, Dunning, 1996 among others). This interdependence makes the liberalisation of trade and investment regimes both necessary and inevitable for exploiting the opportunities for international business expansion. Any attempt in the direction of protectionism is likely to leave the national economy inefficient and uncompetitive.

Export Response to Trade Liberalisation in the Presence of High Trade Costs: Evidence for a Landlocked African Economy

The paper investigates the relative importance of trade policy and 'natural' sources of export taxation in Malawi, a landlocked African economy. These sources of export taxation are in turn used to explore how export supply would respond to trade liberalisation as opposed to measures which lower other international trade costs. The findings indicate that trade policy barriers are now only a limited source of 'true' export taxation and that trade policy reform needs to be complemented with reforms to reduce international trade, including transport, costs.

Development, trade, and the WTO: a handbook

Developing countries are increasingly confronted with the need to address trade policy related issues in international agreements, most prominently the World Trade Organization (WTO). New WTO negotiations on a broad range of subjects were launched in November 2001. Determining whether and how international trade agreements can support economic development is a major challenge. Stakeholders in developing countries must be informed on the issues and understand how their interests can be pursued through international cooperation. This handbook offers guidance on the design of trade policy reform, surveys key disciplines and the functioning of the World Trade Organization (WTO), and discusses numerous issues and options that confront developing countries in using international cooperation to improve domestic policy and obtain access to export markets. Many of the issues discussed are also relevant in the context of regional integration agreements. Separate sections of the handbook summarize what constitutes sound trade policy; the major aspects of the WTO from a development perspective; policy issues in the area of merchandise trade and the liberalization of international transactions in services; protection of intellectual property rights and economic development; new regulatory subjects that are emerging in the agenda of trade talks; and enhancing participation of developing countries in the global trading system.

Trade policy reform, endogenous lobby group formation, and environmental policy

This paper explores the effects of trade liberalization on environmental policy outcomes when collective action is endogenous. The polluting industry’s ability to undertake lobbying is shown to depend on the degree of competition in the product market, establishing a new link between trade and environmental policies. If trade liberalization causes industry collective action to become harder to sustain, the stringency of the environmental policy is likely to rise. These results highlight the role of trade liberalization on product market competition and its consequent impact on the incentive to lobby for less stringent environmental policies.

Trade Policy Reforms in South Asia and Australia-South Asia Trade: Intensities and Complementarities

Although trade between Australia and the SAARC region has been quite low, it has been growing in recent years with progressive trade liberalization in Australia as well as in the SAARC region, but the potential for further expansion has not been extensively explored. The objective of this article is to analyze trade flows between Australia and SAARC countries using trade intensity index and the revealed comparative advantage index (RCA) to identify potential areas for further expansion of Australia's trade into the region. Our analysis of trade flows also demonstrates that there is a high level of trade complementarity between Australia and member countries of SAARC. This study reveals that there is an untapped potential for Australia to increase its exports to South Asia, based on these com plementarities.

Developing Countries and the Gains from Regionalism: Links between Trade and Farm Policy Reforms in Mexico

AbstractWe use a multi‐country computable general equilibrium (CGE) model with agricultural policy details to simulate the effects of North American Free Trade Agreement (NAFTA). We find that Mexico gains from NAFTA only when it also removes domestic distortions in agriculture. In that case, agriculture can generate allocative efficiency gains large enough to offset the terms of trade losses that arise because Mexico has higher initial tariffs than its NAFTA partners. When an RTA forces a developing country to reform its domestic distortions that are linked to trade restrictions, it becomes a building block toward multilateralism.