This paper uses detailed data on bound and applied tariffs to assess the consequences of the WTO's December 2008 Modalities for tariffs levied and faced by developing countries, and the welfare implications of these reforms. We find that the tiered formula for agriculture would halve tariffs in industrial countries and lower them more modestly in developing countries. In non-agricultural market access (NAMA), the formulas would reduce the tariff peaks facing developing countries and cut average industrial country tariffs by more than a third. We use a political-economy framework to assess the implications of flexibilities for the size of the tariff cuts and find they are likely to substantially reduce the outcome. However, despite the flexibilities, there are likely to be worthwhile gains, with applied tariffs facing developing countries cut by about 20% in agriculture and 28% in NAMA, and sizeable cuts in tariffs facing industrial countries. The welfare impacts of reform are evaluated using a new approach to aggregation that improves on the traditional, flawed approach of weighted-average tariffs. This substantially increases the estimated benefits of an agreement along the lines of these modalities, with estimated global income gains of up to $160 billion per year from market access reform.

This study describes and analyzes trends in China's participation in the WTO dispute settlement system during the first ten years of its membership. China has used the system to challenge differentiated treatment of its exports by its two largest trading partners, a theme related to sensitive aspects of its accession negotiations. The study reviews the record of China's conformity to WTO dispute settlement practices, and its contribution to their development, and finds that China is playing the role of a ‘system-maintainer’. The study concludes by considering a future challenge that the emergence of this large new player may pose for the system.

This paper provides a systematic welfare-based approach to analyze the impact of non-tariff measures (NTMs) on trade and welfare in the presence of market imperfections. It focuses on standard-like measures such as technical barriers and sanitary and phytosanitary regulations. The approach overcomes the shortcomings of the mainstream approach based on the analysis of foregone trade caused by trade costs. The latter ignores market imperfections, and welfare is found to increases when NTMs are reduced and trade expands. We explain how to account for external effects and market failures in trade-focused welfare analysis, leading to a more balanced overall assessment of measures despite a potential reduction of trade flows. The relationships between trade, welfare, and NTMs are complex, and generalizations are best avoided. Very often, the optimum NTM is not the absence of regulation. An application to shrimp trade illustrates the feasibility of the proposed approach. The illustration shows that the reinforcement of a food safety standard can be socially preferable to the status-quo situation, both domestically and internationally.

This paper examines the specific ways in which the provision of emissions permits by governments in carbon trading schemes, interacts with, and challenges, the disciplines on subsidies in the WTO Agreement on Subsidies and Countervailing Measures. It will argue that the case of emissions permits gives rise to two key challenges. First, it highlights the need for a resolution on the issue of the characterization of intangible goods under the SCM Agreement, and the importance this has for the calculation of benefit and hence the correct application of SCM disciplines. Secondly, when applied to emissions permits, the SCM Agreement produces a result that heavily favours the complaining Member at the expense of ‘distributive justice’. This is compounded by the current lack of directly applicable exceptions for subsidies directed at legitimate public policy goals. Fundamentally, this will affect the potential cost and continuing viability of national emissions trading schemes and further challenge the environmental credentials of the WTO.

There is no consensus in the literature on whether preferential trade agreements help or hinder trade liberalization toward non-members. We examine the link between preferential trade liberalization and tariffs imposed against non-member countries for the case of CAFTA-DR. Using product data at the 6-digit HS level, we find that products with larger reductions in preferential tariffs experienced larger increases (or smaller decreases) in most-favored nation tariffs applied against non-members. However, we also uncover some interesting dynamics regarding the relationship between preferential liberalization and tariffs imposed against non-members. When we split the sample period into two sub-periods, we find an initial negative relationship between changes in preferential and most-favored nation tariffs during the first half of the sample period, followed by a positive relationship during the second half, although the evidence on the latter is not as strong. The results thus provide the first evidence of an initial stumbling block effect of preferential trade liberalization on unilateral liberalization, as well as (weaker) evidence of a subsequent building block effect.

There is no doubt that trade and climate policies can be mutually destructive. But there are three strong reasons to suggest that they can also be mutually supportive: they have a common problem, common foes, and common friends. Mutual support would be much stronger if the world regimes for these two policies shared a few common principles. The climate community should feel at ease with the broad WTO principles of ‘national treatment’ and ‘most-favoured nation’, and rely on them in building its own treaty and institutions. The trade community should grasp the opportunity to benefit from the better disciplines on adjustment policies that it is hoped the climate community will design.

These conclusions should put the many pending problems into a more positive perspective, and persuade negotiators to find pragmatic compromises, as was the case with the GATT. Using this perspective, the paper focuses on a few key issues, such as the definition of carbon border taxes and the reasons to ban carbon tariffs. Other cases of mutual support are examined. For instance, the climate community should not repeat the mistakes of the world trade regime in dealing with the developing and least developed countries.

The WTO Secretariat describes sustainable development as a central WTO principle. Relevant international law treaties have declared sustainable development's mutual supportiveness with trade liberalization, and also emphasized the need to balance its ‘pillars’: economic development, often equated with trade liberalization, with environmental conservation and social welfare. While ‘mutual supportiveness’ suggests that sustainable development's environmental and social goals are a side effect of trade liberalization, ‘balancing’ involves weighing these different goals, and prompts the difficult question of which are most important, and who is empowered to decide. This paper traces these two broad theoretical conceptions through WTO legal texts, negotiations and dispute settlement, arguing that they have important pragmatic implications. In particular, to create mutual supportiveness WTO Director-General, Pascal Lamy, has stated the need for adequate domestic policies, suggesting that the WTO should support these. Yet, if they have negative trade impacts, pure ‘sustainable development’ policies may be difficult to balance against the WTO obligation to liberalize trade.

To justify certain sanitary and phytosanitary measures vis-à-vis New Zealand apple fruit, Australian authorities performed an import risk assessment that was riddled with scientific uncertainty. The quality and reliability of this assessment was the central bone of contention between the parties in the Australia–Apples dispute. In consequence, it featured prominently in the Appellate Body's discussion. In commenting on the Appellate Body Report, we are concerned with the standard of review of Members' decisions that are taken in situations of factual uncertainty. We discuss the elements in a Member's risk assessment that, in our view, should be considered ‘off limits’ for review by Panels if such assessment was performed in the presence of uncertain scientific facts, and how high degrees of uncertainty affect a Panel's ability to assess alleged less-trade-restrictive alternatives. Relying on findings from the disciplines of economics, decision analysis, and risk management, we introduce a basic framework for decisionmaking in conditions of uncertainty. We submit that certain types of decisions taken by the risk assessor cannot be subject to external review, since they necessarily contain subjective trade-offs on the part of the risk assessor. Applying our theoretical insights to the Apples case, we offer a series of recommendations concerning Panels' discretion to review Members' risk assessments and suggest concrete modifications to the standard of review currently applied by the Appellate Body.

The tension between standards being a response to market failures versus creating barriers to trade characterizes much of their economic analysis. This article explores in more detail the link between international trade and standards based on resolution of a public bad(s) problem. Specifically, a general equilibrium setting is sketched out, drawing on existing analysis in the trade and environmental economics literature, and designed to capture some key stylized facts and basic hypotheses concerning North–South trade where standards are targeted at negative externalities in production. The key conclusions to be drawn are that while a clear theoretical foundation exists for the hypothesis of ‘standards as barriers’ to trade, and the likely benefits of aid for trade programs, this is not the case for the hypothesis of ‘barriers as a catalyst’ for trade, pointing to the need for further research on the latter hypothesis.

After years of debate, the issues of whether and where (i.e. under which legal element) regulatory purposes should be considered under Article III:2 and Article III:4 of the GATT – the most invoked provisions of the National Treatment rule – remain unsolved. This article submits that the preparatory work of the National Treatment rule provides significant interpretative guidance on the issues. In relation to Article III:2, 2nd sentence and Article III:4, the WTO jurisprudence has achieved consistency with the interpretative guidance. However, by expanding the reach of Article III:2, 1st sentence to origin-neutral fiscal measures whereas rejecting the relevance of regulatory purposes to the determination of whether such measures are in violation of that sentence, the WTO judges have failed to respect the functions of Article III:1 and Article III:2, 1st sentence as contemplated by the draftsmen. To remedy this failure, this article proposes that the WTO adjudicators should either approve formal purpose inquiries under Article III:2, 1st sentence, or, alternatively, confine the application of that sentence to origin-specific measures only.

This paper reviews the emerging literature on the political economy of public standards in an open economy to explain why standards are set at certain levels, and how this affects trade. We use a simple framework to illustrate how interest groups may influence the standard-setting process, and which factors may affect the political equilibria. We analyze the relation between trade and standards, and their potential protectionist nature. We argue that standards may act as barriers or catalysts to trade, that both under- or over-standardization may occur, and that standards may serve as protectionist instruments, or not.

At the heart of the dispute on EC–IT Products1 is the definition of information-technology (IT) products and the question of how to treat increasingly multifunctional high-tech goods. The dispute was triggered by various measures introduced by the European Union, resulting in the imposition of duties of up to 14% pertaining to the tariff treatment of certain multifunctional IT products. The complaining parties (the United States, along with Japan and Taiwan) argued that, by introducing these duties, the EU had violated the 1996 Information Technology Agreement (ITA). The WTO Panel Report, circulated on 16 August 2010, ruled in favor of the complaining parties, and ordered the EU to repeal the measures leading to the dutiable treatment of the products at stake. We argue that the Panel's ruling enhances the credibility of trade-policy liberalization in the high-tech sector, fostering the development of new technologies.

In this article, we review the literature on the measurement of trade costs in international trade with a special emphasis on non-tariff measures and in particular on standards and technical regulations. We distinguish ‘direct’ from ‘indirect’ approaches. The direct approach collects observable data or proxy variables on trade cost components which are then typically used as regressors in a gravity equation of trade. Instead, the indirect approach infers the extent of trade impediments from trade flows. It compares actual trade flows to the trade flows predicted by a hypothetical frictionless benchmark scenario based on a micro-founded trade model, attributing the deviation of actual from predicted trade flows to trade frictions. We argue that economists and policy-makers can gain useful insights from both approaches.

This paper analyzes the dispute between Thailand and the United States regarding the method of calculating the anti-dumping duty on polyethylene retail carrier bags from Thailand. In December 2006, after a series of WTO Appellate Body reports, the United States ceased zeroing in original investigations. The United States implemented the policy change prospectively, that is only for future cases. Consequently, the margins in this case remained unchanged because they had been calculated in 2004. Thailand challenged the United States' use of zeroing in the final determination. The US did not contest the claim. The Panel confirmed that zeroing was used and, following the long line of Appellate Body rulings, found the United States' practice inconsistent with Article 2.4.2 of the Anti-Dumping Agreement. After the Panel Report was adopted, the United States retroactively applied the policy change to the facts of this case and recalculated the margins without zeroing. The relative simplicity of the panel proceeding and the United States' willingness to amend the calculations following the adoption of the Panel Report may invite other WTO members to pursue a similar course of action in instances where their exporters have been subjected to US zeroing.

Although Asian regionalism has commanded much attention from academics and policymakers, it has largely been restricted to the trade and financial realms. This paper focuses specifically on the scope and limits of ‘investment regionalism’ involving Asia. A combination of regional foreign direct investment (FDI) stakes and international socialization patterns has led Asian actors to mark investments as a key issue in their regionalism strategy overall. As elsewhere, they too have moved toward a mode of governance favoring the formal legalization of investments in terms of the precision, obligation, and delegation of rules. Already the endeavors of both the middle and dominant economies in the region have shifted from just concluding Bilateral Investment Treaties (BITs) and investment-related chapters in Free Trade Agreements (FTAs) to designing region-wide investment agreements and initiatives by-and-for Asian countries. Although the legal effectiveness of this rule-making change will play out in the long run in and across Asian societies, the more immediate policy implication relates to its potential impact on the evolution of Asian regionalism as a whole.