Evaluating WTO Accession: Legal

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Evaluating WTO AccessionLegal Economic
Perspectives

• Simon J. Evenett, University of Oxford
• www.evenett.com
• World Bank Videoconference
• 24 February 2005

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Contents of this presentation

• Motivation for this analysis.
• Legal analysis of nature and extent of WTO
  accessions.
• Economic evidence on whether new WTO members
  capitalise on market opportunities created by
  accession.
• Implications for policy-making, donors, and the
  international development institutions.

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Motivation

• Beyond certain circles, little is known about the
  terms and process of WTO accession.
• Assertions replace factsreputation of WTO.
• Planning and expectations of WTO
  applicantsorganisation and execution of
  accession effort.
• Assessment, financing, and provision of technical
  assistance.
• Little is known about the economic impact of WTO
  accession.

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Claims about the WTO accession process.

• Concerns raised about negotiating accession
• Price is too high including being asked to sign
  WTO commitments and WTO- rights.
• Price is growing
• Negotiations are taking longer to complete
• Cost and complexity of negotiations is high and
  growing
• Some recent economic research points to increased
  manufactured trade post-WTO accession.

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Legal Analysis
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Findings concerning

• Legal definition of WTO accession process.
• Whether the price of accession is growing over
  time.
• Treatment of Least Developed Countries.
• Recommendations.
• Sources.

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1. Legal definition of WTO accession process

• Article XII of the Marrakesh Agreement New
  members may join the WTO on terms to be agreed
• A multi-step process has been developed for WTO
  accessions, there is a scarcity of rules on the
  terms governing accession.
• Uncertainty.
• Paradox.
• Developmental significance.

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2. Price of accession

• Market access related commitments
• Agricultural products.
• Non-agricultural products.
• Services.
• Special commitments.
• Transition periods.
• Exemptions.
• Special reference to Bulgaria, Ecuador, and
  Jordan.

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Type of specific commitments

• Statements of fact.
• Obligations to abide by existing WTO rules.
• Obligations not to have recourse to specific WTO
  provisions (WTO minus rights)
• Specific transition periods.
• Authorisations to temporarily depart from WTO
  rules.
• Obligations to abide by commitments not contained
  in WTO Multilateral Agreements (WTO plus)

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Commentary on specific commitments

• Significance of these commitments for a
  rules-based trading system.
• Potential for creating second class citizens.
• These commitments recur in nine particular areas.
• Extremely difficult to classify.
• Room for interpretationespecially concerning
  controversial WTO commitments.
• Identified specific examples of potential WTO
  commitments in Bulgaria, Ecuador, and Jordans
  accession.

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3. Treatment of Least Developed Countries.

• Two LDCs have acceded 8 are in the process of
  accession.
• General Council decision on 10 December 2002, and
  its antecedents.
• Guidelines on restraint, SD, and transitional
  periods.
• Record.
• Statements by Cambodia and Nepal.
• Assessment.

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Potential reforms to WTO accession process

• Sharpen legal definition of WTO accession process
  to
• Focus on trade-related matters.
• Reduce likelihood of differentiation between
  peersestablish presumptions on treatment.
• Reduce uncertainty.
• Clarify the categorisation of existing and future
  specific commitmentsand, if not, adopt a
  presumption of parity across peers.

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Economic Analysis
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Claims made about economic impact of WTO accession

• Integration into world economy
• Access to overseas markets.
• Access to imports.
• More inward FDI.
• Seal of approval.
• Development of a rules-based market economy.
• Better governance and government credibility.
• Implementation costs of accessiontalent and
  government budgets.
• Income distribution and poverty.

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Claims made about economic impact of WTO accession

• Integration into world economy
• Access to overseas markets.
• Access to imports.
• More inward FDI.
• Seal of approval.
• Development of a rules-based market economy.
• Better governance and government credibility.
• Implementation costs of accessiontalent and
  government budgets.
• Income distribution and poverty.

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Approach taken here.

• Focus on four countries that joined WTO/GATT.
• Establish factual record.
• Macroeconomic and development context.
• Examine changes in trading patterns.
• Examine changes in tariffs.
• Evaluation of existing studies of WTO accession
  on trade flows.
• Development of a more disaggregated approach to
  better identify what market signals, if any,
  firms respond to after WTO accession.

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Establishing the facts.

• Often unstable macroeconomic context.
• Domestic macroeconomic performance.
• Terms of trade shocks.
• Supply side shocks.
• Transition to market economy.
• Substantial changes in recorded changes in trade
  flows.
• Data anamolies.
• Changes in number (and types) of goods exported.
• Changes in export destination.

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Tariffs need not fall after WTO accession the
telling case of Ecuador.

• Compared 6-digit tariff line data for years 1993,
  1997, and 1999.
• Comparing 1993 and 1997
• 81 of tariff lines applied MFN rates rose11
  saws falls.
• Of those lines that saw increases, mean rise was
  4.75.
• Percentage of lines with tariff peaks (applied
  MFN rates above 15) rose from 15 to 29.
• Situation had worsened by 1999.

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Aggregate studies of the effect of WTO accession
on trade.

• These studies
• Pool across countries.
• Pool across broad classes of goods (agricultural,
  manufacturing)
• Estimate a common jump in trade after
  accessionfind a positive effect of WTO accession
  on manufactured goods trade.
• Commentary.
• Heterogenity.
• Pooling essential for identifying effect of WTO
  accession.

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Identifying incentives created by WTO accession
with a disaggregated approach

• Want an approach to better identify the
  incentives created by WTO accession for
  exporters.
• Look into exports to leading industrial
  countries.
• Two mechanisms Falling MFN rates can reduce
• Border barriers faced by exporters.
• Threat of losing preferences.
• Both are uncertainty based arguments.
• Use detailed export data for Bulgaria and Ecuador.

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Findings do incentives matter?

• Sales of long-standing products to existing
  overseas marketsthe good news.
• Falling border barriers important for
  Bulgariaaccounts for 19.2 of post-accession
  export growth to Quad countries.
• Reduced downside from losing preferences is
  important for Ecuador.
• Sales of long-standing products to new
  marketsthe bad news.
• No evidence that incentives created by WTO
  accession matter.

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Summary of economic analysis

• Country heterogenity is very importantbut is
  rarely taken into account in existing evaluations
  of the impact of WTO accession on trade.
• Need new approaches to assess the impact of WTO
  accession is existing approaches cannot always be
  implemented on a country-by-country basis.
• Disaggregated trade barrier data can be used to
  better identify the incentives created by WTO
  accession on overseas market access.
• Incentives matterbut not every incentive matters
  all the time.
• Are the market signals getting through? Why not?