Liberalising Trade in the Agriculture Sector of a Small Island State: The Case of Fiji

This paper uses Fiji as a case study to investigate the impacts of three trade liberalisation policies – removal of sugar price subsidies, unilateral trade liberalisation and multilateral trade liberalisation, implied by the successful completion of the Doha Round. Removal of the sugar price subsidies has an adverse effect on real output, real national welfare and employment, but promotes growth of non‐agricultural exports in the long run. Unilateral trade liberalisation, in the form of tariff cuts in the agricultural sector, increases real output, real national welfare and non‐agricultural exports in the medium term. However, this growth is not sustained in the long term. The best outcome for Fiji is multilateral trade liberalisation which increases real output, real national welfare, non‐agricultural exports and employment. It is argued that reform of trade policies in less developed countries could come at a cost, therefore highlighting the need for compensating mechanisms to deal with the adverse impacts. Other measures to assist farmers to expand output in response to a rise in prices could include measures to reduce transport, storage and packaging costs, as well as institutional measures to enhance the functioning of input and factor markets.     

Multilateral,Regional and Bilateral Trade‐Policy Options for the United States and Japan

We have used the Michigan Model of World Production and Trade to simulate the economic effects on the United States, Japan, and other major trading countries/regions of the Doha Round of WTO multilateral trade negotiations and a variety of regional/bilateral free trade agreements (FTAs) involving the United States and Japan. We estimate that an assumed reduction of post‐Uruguay Round tariffs and other barriers on agricultural and industrial products and services by 33 per cent in the Doha Round would increase world welfare by $686.4 billion, with gains of $164.0 billion for the United States, $132.6 billion for Japan, and significant gains for all other industrialised and developing countries/regions. If there were global free trade with all post‐Uruguay Round trade barriers completely removed, world welfare would increase by $2.1 trillion, with gains of $497.0 billion (5.5 per cent of GNP) for the United States and $401.9 billion (6.2 per cent of GNP) for Japan. Regional agreements such as an APEC FTA, an ASEAN Plus 3 FTA, and a Western Hemisphere FTA would increase global and member country welfare but much less so than the Doha multilateral trade round would. Separate bilateral FTAs involving Japan with Singapore, Mexico, Chile and Korea, and the United States with Chile, Singapore and Korea would have positive, though generally small, welfare effects on the partner countries, but potentially disruptive sectoral employment shifts in some countries. There would be trade diversion and detrimental welfare effects on some non‐member countries for both the regional and bilateral FTAs analysed. The welfare gains from multilateral trade liberalisation are therefore considerably greater than the gains from preferential trading arrangements and more uniformly positive for all countries.     

Computational Analysis of the Menu of US‐Japan Trade Policies

We have used the Michigan Computable General Equilibrium (CGE) Model of World Production and Trade to calculate the aggregate welfare and sectoral employment effects of the menu of US‐Japan trade policies. The menu of policies encompasses the various preferential US and Japan bilateral and regional free trade agreements (FTAs) negotiated and in process, unilateral removal of existing trade barriers and global (multilateral) free trade. The welfare impacts of the FTAs on the United States and Japan are shown to be rather small in absolute and relative terms. The sectoral employment effects are also generally small but vary across the individual sectors depending on the patterns of the bilateral liberalisation. The welfare effects on the FTA partner countries are mostly positive though generally small, but there are some indications of potentially disruptive employment shifts in some partner countries. There are indications of trade diversion and detrimental welfare effects on non‐member countries for some of the FTAs analysed. In comparison to the welfare gains from the US and Japan bilateral FTAs, the gains from both unilateral trade liberalisation by the United States, Japan and the FTA partners, and from global (multilateral) free trade are shown to be rather substantial and more uniformly positive for all countries in the global trading system. The US and Japan FTAs are based on ‘hub’ and ‘spoke’ arrangements. We show that the spokes emanate out in different and often overlapping directions, suggesting that the complex of bilateral FTAs may create distortions of the global trading system.     

Trade Liberalisation: The Effects of Free Trade Agreements on the Competitiveness of the Dairy Sector

In recent years, preferential trade agreements (PTAs), free trade agreements (FTAs) in particular, have proliferated while WTO negotiations have stagnated. This paper contributes to the literature on trade liberalisation and the agricultural sector by analysing the effects of FTAs on the competitiveness of the dairy sector across 76 countries and over a 20‐year period from 1990 to 2009. With a longitudinal econometric model, the results demonstrate that when a country has a revealed comparative advantage in the dairy sector, FTAs positively influence several indicators of competitiveness in the dairy sector, such as production, market share and trade balance. The results also indicate that multilateral FTAs are more beneficial than bilateral FTAs. There is strong empirical evidence that FTAs are more beneficial to developed countries than to developing countries. There is no statistical evidence to support the hypothesis about a relationship between FTAs and farm‐gate price.     

A Meta‐Analysis of General and Partial Equilibrium Simulations of Trade Liberalisation under the Doha Development Agenda

Model‐based simulation of welfare effects is commonly used to make a case for trade liberalisation and to inform participants and stakeholders in trade negotiations. However, the simulated welfare effects of trade liberalisation vary greatly, even across studies that model similar liberalisation scenarios. This undermines confidence in the reliability of model‐based simulations. A meta‐analysis of over 100 studies that model WTO Doha Development Agenda trade negotiation outcomes is employed to identify characteristics of models, databases and liberalisation experiments that influence simulated welfare effects. Meta‐regressions produce plausible results and explain a significant proportion of the variation in simulated welfare effects in a representative sample of Doha Development Agenda trade liberalisation studies. Results also reveal that many quantitative trade policy simulation studies fail to adequately document the assumptions and data on which they are based.     

International Trade Agreements and International Migration

Despite large potential economic gains, bilateral and multilateral negotiations focusing on liberalisation of migration have not shared the high profile of international trade negotiations and agreements. Migration and trade have been traditionally viewed rather separately and the relevance of the many, and complex, interdependencies has been given remarkably little attention in the literature to date. In this article, we focus on the two‐way interaction between international migration and agreements designed to enhance cross‐border trade and investment. Liberalisation of international trade in services and in the movement of people potentially offers much greater economic gains than liberalisation of remaining barriers to goods trade. However, progress within multilateral frameworks is fraught with difficulty. The World Trade Organization’s General Agreement on Trade in Services (GATS) has yielded little real progress so far and negotiations within more flexible unilateral and bilateral frameworks are likely to be more successful in liberalising the movement of labour. We discuss a range of specific examples, focusing particularly on the interesting case of New Zealand. We find that trade agreements are increasingly including agreements on migration, though typically favouring temporary migration and involving numerically modest quotas. We conclude that migration regulatory frameworks are likely to be further and more strongly linked to trade and investment agreements in the future, particularly given changing economic and demographic forces. The primary focus of migration policies may nonetheless remain different from that of trade policies. While further migration liberalisation is likely to be through bilateral and regional agreements, it will be important to try to lock in the gains of such agreements, while simultaneously working to consolidating these in a way that will help to facilitate future multilateral agreement.     

South Asia: Does Preferential Trade Liberalisation Make Sense?

This paper systematically analyses the issue of trade liberalisation in the South Asia region and offers a qualitative assessment of alternative approaches. I compare two broad approaches to trade liberalisation: non‐discriminatory and preferential. The former approach can be pursued on a unilateral basis by each country in the region, on a concerted basis by the countries in the region, or multilateral basis under the auspices of the WTO. The latter approach can take the form of criss‐crossing bilateral free trade areas between various countries in the region or a region‐wide free trade area. The view I take in the paper is that the move towards preferential trading is a mistake, at least from the viewpoint of India. India continues to have very high trade barriers so that the scope for trade diversion and the losses accompanying it are likely to be considerable. Business lobbies being relatively powerful in most of the countries in the region, they are likely to exploit the rules of origin and sectoral exceptions in these arrangements in ways that will maximise trade diversion and minimise trade creation. Inasmuch as the rules of origin give bureaucrats power, employment and opportunities to share in the rents created by tariff preferences, they too will become active parties to the diversionary tactics of business lobbies. Therefore, the member countries are better advised to proceed along non‐discriminatory lines in achieving further liberalisation.     

A South–South Survival Strategy: The Potential for Trade among Developing Countries

Trade between developing countries, or South–South trade, has been growing rapidly in recent years following reductions in tariff barriers. However, significant barriers remain, and there is currently reluctance in many developing countries to undertake further reductions, with a preference instead for focusing on opening up access to developed country markets, or maintaining the status quo given that multilateral liberalisation may result in the erosion of preferential access enjoyed by some developing countries. This emphasis on Northern markets represents a missed opportunity for developing countries. To assess this we compare the potential effects of the removal of barriers on South–South trade with the gains from developed country liberalisation and from regional free trade areas within Africa, Asia and Latin America. A general equilibrium model, the Global Trade Analysis Project (GTAP) model, containing information on preferential bilateral tariffs, is used to estimate the impacts. The results indicate that the opening up of Northern markets would provide annual welfare gains to developing countries of $22 billion. However, the removal of South–South barriers has the potential to generate gains 40 per cent larger. The results imply that giving greater emphasis to removing barriers between as well as within continents could prove a successful Southern survival strategy.     

Determinants of Bilateral Trade Protection

In this paper, determinants of bilateral protection levels are empirically identified when controlling for multilateral trade regulation and importing‐country‐specific factors. Strong empirical support is provided of that three bilateral factors are influencing the bilateral protection level. Specifically, a country's protection level on goods from a trade partner is positively affected by the domestic import penetration of goods produced by the trade partner, negatively influenced by the intra‐industry traded share of these imports and positively affected by the trade partner's protection level on domestic goods. Moreover, very high explanatory values are provided in the cross‐section estimations, indicating that these determinants, policy regulations and importer‐specific factors jointly explain almost all of the variation in bilateral protection levels. The results are general in the sense that estimations are performed for a large sample of bilateral trade relations including 22 trade partners that are highly differentiated in terms of country characteristics. The overall results indicate that, to the extent that policy makers can affect bilateral protection levels under multilateral trade regulation, they act on political‐economy rather than economic goals.     

Free Trade Areas in East Asia: Discriminatory or Non‐discriminatory?

The debates on regional trade arrangements in East Asia focus on whether the RTAs can be net trade creating or diverting, and whether they impede multilateral trade liberalisation or not. This paper attempts to answer these questions by quantitatively estimating the economic impact of possible East Asian free trade areas based on a bilateral gravity model, and evaluating the main characteristics of the proposed FTAs. We find that the trade creation effect expected from the proposed East Asian FTAs such as a China‐Japan‐Korea or an ASEAN plus three (China, Japan, Korea) FTA will be significant enough to overwhelm the trade diversion effect. We also judge that East Asian FTAs will likely be a building block for a global free trade.     

Bilateral ‘WTO‐Plus’ Free Trade Agreements: The WTO Trade Policy Review of Singapore 2004

The World Trade Organisation's 2004 Trade Policy Review of Singapore (WTO‐TPR Singapore 2004) depicts the small and outward‐oriented economy as one of the most open countries to international trade and investment. The review highlights the benefits of the outward‐oriented strategy that has enabled the Singapore economy to weather recent external shocks such as the Asian financial crisis to the SARS and to the recent unfavourable conditions in the Middle East. In particular, the report commended Singapore's efforts on its liberalisation of the services sector and its economic benefits to consumers and global trade. However, the WTO‐TPR Singapore 2004 highlights several key areas of concerns: (a) the commitment to multilateral agreements with the rising number of bilateral free trade agreements signed by Singapore and (b) the lack of growth of total factor productivity, a key indicator for long‐run efficiency of the economy. The paper addresses the above key concerns raised in the WTO's TPR of Singapore in terms of its commitment to global trade in terms of WTO‐plus bilateral FTAs, which intends to support a multilateral trading system, and its overall industrial strategies to raise its competitiveness.     

Regional Trade Agreements versus Global Trade Liberalisation: Implications for a Small Island Developing State

This study undertakes an empirical investigation of the macroeconomic and sectoral impacts of two forms of regional trade agreements vis‐à‐vis global trade liberalisation on a small island country, using Fiji as a case study. In order to capture the feedback effects of such a complex set of policies, we employ a dynamic computable general equilibrium model of the Fijian economy to investigate (i) the impact of the Pacific Island Countries Trade Agreement (PICTA), (ii) the impact of PICTA, the Pacific Agreement for Closer Economic Relations (PACER), and the Economic Partnership Agreements (EPAs), (iii) the impact of full tariff liberalisation (i.e. tariff removal only), and (iv) the impact of full trade liberalisation, with removal of both tariff and non‐tariff barriers. While PICTA consistently provides the least benefits across a range of macroeconomic indicators including real output, welfare, trade volumes and employment, full trade liberalisation involving the removal of tariff and non‐tariff barriers provides the greatest benefits compared to the other scenarios in terms of real output. However, the latter scenario is outperformed by PICTA, PACER, the EPAs and full tariff liberalisation in terms of welfare effects, trade volumes and employment. The policy implications hold important lessons for developing countries considering trade liberalisation.     

On the European Responsibility in the Agricultural Multilateral Trade Negotiations: Modelling the Impacts of the Common Agricultural Policy

The present round of multilateral trade negotiations is still deadlocked over agricultural trade. The European Union (EU) is urged by its trading partners to open its agricultural markets. Economic evaluations of trade liberalisation scenarios unanimously conclude that a substantial opening of agricultural markets is required for a successful (welfare‐improving) Doha Round. In this paper, we perform new evaluations to identify precisely the contributions of the European farm policy and to examine the robustness of these evaluations in the representation of this complex policy. Using the same specifications as in major previous studies, our first simulations show that the EU has a major responsibility in delivering significant gains to the developing countries. On the other hand, when we conduct the same experiments with a more relevant calibration and modelling of the European farm policy instruments, the gains that these developing countries may reap from the EU liberalisation are considerably reduced. Accordingly the current charge against the EU is simply inopportune.     

Are bilateral and multilateral aid‐for‐trade complementary?

Using the first comprehensive estimates of ad valorem tariff equivalent bilateral trade costs spanning the time period 2002–10, we examine whether the aid‐for‐trade (AFT) inflows reduce bilateral trade costs facing aid recipients. If so, we ask whether the trade costs reduction effects of AFT from bilateral and multilateral sources are complementary. By showing the extent to which the observed trade cost reduction effects of AFT from bilateral (multilateral) sources correlate with the magnitudes of AFT disbursements from multilateral (bilateral) sources, we present plausible explanation for the cross‐country variations in the extent to which AFT promotes trade flows. Our findings have, thus, important policy implications for shaping future discourses on the coordination of disbursements for enhancing the effectiveness of AFT.     

Tariff Liberalisation and the Growth of World Trade: A Comparative Historical Analysis of the Multilateral Trading System

The aims of this study are to assess the relationship between tariff barriers and world trade growth from a comparative and historical perspective, and to derive some useful indications for evaluating the effectiveness of the current multilateral trading system for promoting world trade. The novelty of this work is the complex reconstruction of a historical tariffs and trade series for the period 1870–2000, for 23 countries; this constitutes a good proxy for world trade (accounting for over 60 per cent) in this period. The effect of tariff liberalisation on trade growth is analysed empirically using panel data and time series. The results, while confirming the existence of a world level long‐term relationship between tariff reductions and trade growth, demonstrate how this substantial and significant relationship pre‐World War II gradually diminished in importance and significance after 1950. This result does not conflict with the key role of the General Agreement on Tariffs and Trade/World Trade Organization system in trade liberalisation; however, it underlines the importance of a formalised multilateral trading system, not so much for tariff liberalisation, but for building a virtuous process of international coordination of trade policies and ensuring fuller participation in world trade.     

Failure of the WTO Ministerial Conference at Cancun: Reasons and Remedies

This paper first discusses four general developments in the world trading system that have made it increasingly difficult in recent years for nations to reach multilateral agreements aimed at further liberalising international trade, namely: (1) the increased technical complexity and disruptive domestic economic effects of the issues being negotiated; (2) the shift in relative bargaining power among the negotiating participants in favour of the developing countries; (3) the proliferation of bilateral and regional free trade agreements in contrast to multilateral agreements, and (4) the increased emphasis on achieving ‘fairness’ rather than reciprocity in trade liberalisation. Differences in negotiating positions of the participants on the major specific negotiating subjects of the Doha Round, such as new rules covering investment, competition policy, government procurement policy, and trade facilitation, agricultural liberalisation, changes in anti‐dumping and countervailing duty rules, the tariff‐cutting rule to increase access to non‐agricultural markets, and further liberalisation in the services sector, are then considered as well as the likelihood of reaching compromises on these matters. Finally, the possibilities of reaching acceptable balances of concessions and gains are considered for such key participants as the Group of 20 developing countries, the European Union, the United States and other industrial countries.     

Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade

This paper addresses the final steps to global free trade – what they might look like, what sort of political economy forces might drive them, and what the WTO might do to help. Two facts form the point of departure: (1) Regionalism is here to stay; world trade is regulated by a motley assortment of unilateral, bilateral and multilateral trade agreements; (2) this motley assortment is not the best way to organise world trade. Moving to global duty‐free trade will require a multilateralisation of regionalism. This paper presents the political economy logic of trade liberalisation and uses it to structure a narrative of world trade liberalisation since 1947. The logic is then used to project the world tariff map in 2010, arguing that the pattern will be marked by fractals – fuzzy, leaky trade blocs made up of fuzzy, leaky sub‐blocs (fuzzy since the proliferation of FTAs makes it impossible to draw sharp lines around the Big‐3 trade blocs, and leaky since some FTAs create free trade ‘canals’ linking the Big‐3 blocs). The paper then presents a novel political economy mechanism – spaghetti bowls as building blocs – whereby offshoring creates a force that encourages the multilateralisation of regionalism. Finally, the paper suggests three things the WTO might do to help multilateralise regionalism.     

Tariff Liberalisation and Increased Administrative Protection: Is There a Quid Pro Quo?

Theoretical models and intuition suggest that the amount of non‐traditional protection such as anti‐dumping duties will increase as more traditional forms such as tariffs are lowered under multilateral trade agreements. This paper is the first empirical study of the role of tariff liberalisation in the spread of anti‐dumping. Through both correlations and regression approaches we analyse the relationship between tariff concessions made during the Uruguay Round trade negotiations and the filing of anti‐dumping petitions, with particular interest in whether multilateral trade reductions have spurred the recent growth in new users of anti‐dumping policies. We find that, at least for developing economies, tariff reductions agreed to under the Uruguay Round not only increased the likelihood of a country using anti‐dumping protection but also the total number of anti‐dumping petitions filed by countries.     

The Determinants of GATS Commitment Coverage

This paper investigates hypotheses about the determinants of trade and investment liberalisation with a particular focus on the market access and national treatment commitments under the General Agreement on Trade in Services (GATS). We set up a database of these GATS commitments and use the ratio of all commitments listed by a country to the possible number of commitments as a measure of liberalisation of market access/national treatment. Our empirical analysis suggests that larger and ‘richer’ countries commit to more liberal regimes of market access and national treatment. This is surprising since economic theory predicts the largest welfare gains for low‐skilled abundant (skilled‐labour/physical‐capital‐scarce) economies. Also, our findings suggest that liberalisation is stronger among geographically close countries with strong ties in goods trade.