ࡱ> ac` d6bjbj 4Jcc-33@@@@@@@@@8%A,QA@fNmAmA:AAABVCdPD4 N N N N N N NP"SL N@DBBDD NF@@AA NFFFDT@A@A NFD NFFVL@@@M?{{@E-M M<6N0fN9MxnSFnSMF@MDDD3 ?:   Session 25: Much ado about what? Do preferential agreements create trade? Sub theme II: The economic, political and technological factors shaping world trade and the role of the rules based multilateral trading system in contributing to the global economic recovery Moderator Mr Pierre Sauv, Deputy Managing Director, World Trade Institute, University of Bern, Switzerland Speakers Mr Anirudh Shingal, Senior Research fellow, World Trade Institute, University of Bern Mr Michael Gasiorek, Unit Director, Centre for the Analysis of Regional Integration at Sussex (CARIS), University of Sussex MrJavier Lopez-Gonzales, Research Affiliate, Centre for the Analysis of Regional Integration at Sussex (CARIS), University of Sussex Discussant Mr Bernard Hoekman, Director, Trade Department, The World Bank, Washington, D.C. Organized by World Trade Institute (WTI), University of Bern Report written by Pierre Sauv, Session Chair and Deputy Managing Director and Director of Studies, World Trade Institute, University of Bern Friday, 17 September 2010 09.00-11.00 Abstract Much recent writing on preferential trade agreements has focused on the qualitative dimensions of competing rule-making architectures. The session organized by the World Trade Institute at the University of Bern aimed to share and critically discuss recent and ongoing empirical research carried out under the Swiss National Centre of Competence in Research (NCCR)-Trade Regulation project anchored at the WTI (see nccr-trade.org). In particular, the session explored the trade effects of preferential liberalization, comparing the effects observed in goods trade with those in services and the forces that distinguish both the magnitude and nature of observed causalities. The session also ascertained whether the greater depth of liberalization achieved in some preferential trade agreements (PTAs), by lessening transaction costs and facilitating supply-chain linkages, may have contributed to a speedier recovery in world trade activity particularly trade recovery proceeding along regional lines within regional production networks or whether alternatively it magnified the contraction in trade observed in the wake of the financial crisis. 1. Presentations by the panellists (a) Javier Lopez-Gonzales, Research Affiliate, Centre for the Analysis of Regional Integration at Sussex (CARIS), University of Sussex MrLopez Gonzalez, a Research Associate at the Centre for the Analysis of Regional Integration at Sussex (CARIS), presented a paper co-authored with Peter Holmes from the University of Sussex on The Nature and Evolution of Vertical Specialisation (VS): What is the role of preferential Trade Agreements?. He noted that the degree of aggregate vertical specialization (VS) seems to depend on the levels of development of a country. Countries with lower per capita gross domestic product (GDP) increasingly import intermediates, but evidence suggests that over time they develop capacity and begin producing and exporting their own intermediates. This suggests that there is certain dynamism in the participation in value chains where there is evidence that countries may be climbing up the value chain. He went on to note that preliminary investigations appeared to identify a correlation between VS and productivity which, combined with the above trends, suggests that there might be reason for policy to focus on promoting developing-country participation in international value chain activity. Addressing the question of intra- and inter-regional VS, Mr Lopez-Gonzalez suggested that there was evidence supporting the view that partners engaged in preferential trade agreements show higher degrees of regional value chain activity. However, the rise of China as a supplier of intermediates to all regions suggests that there may be other factors driving VS. This, in turn, raises several important questions: is geography (proximity) driving these trends?; what is the role of technology and factor endowment differences?; what is the role of deep integration in this process? Further econometric investigation foreseen under the NCCR-Trade Regulation project will aim to tease out these issues by comparing intra-and inter-regional flows. (b) Michael Gasiorek, Unit Director, Centre for the Analysis of Regional Integration at Sussex (CARIS), University of Sussex The presentation on vertical specialization and its determinants was followed by an address by MrGasiorek from CARIS, who, in a paper co-authored with Sarah Ollerenshaw from Sussex, investigated the trade impacts of the recent economic and financial crisis. He noted that several hypotheses had been put forward to explain the severity of the trade contraction observed in the wake of the crisis. The key reasons typically cited are: a decline in demand; difficulties in accessing credit; a rise in protectionism; as well as vertical specialization which magnifies the effect of any decline in demand. The paper focuses particular attention on the role of demand and credit on bilateral trade between countries. In particular, the paper probes whether there is any evidence that being a member of a preferential trading agreement (PTA), and/or whether a country is a high-income country, may mitigate or exacerbate the observed trade effects. Using a gravity model with monthly trade and industrial production data, the authors sought answers to three questions: (i) is there any evidence that trade is higher or lower on average between PTA members?; (ii) what evidence is there for the impact of the crisis on the change in trade and was this different for PTA members?; and (iii) what might explain the peak and trough months for trade for each country? The results suggest that changes in aggregate demand did impact negatively on trade, with a 10per cent decline in demand leading to a 4per cent decline in trade. The research shows that the rise in credit risk appears to have had an even bigger impact on trade, reducing trade by up to 12per cent on average, and up to 20per cent for higher-income PTA partners. These results suggest a greater impact of credit risk on trade than has been assumed to date in the policy debate. They also suggest that more work needs to be done to understand why PTA members may have seen a bigger decline, which may in turn be linked to vertical (supply chain) specialization. (c) Anirudh Shingal, Senior Research fellow, World Trade Institute, University of Berne The sessions third presentation was made by MrShingal, a Senior Research Fellow at the World Trade Institute, University of Bern. MrShingal's presentation sought answers to three distinct research questions using a gravity model against a sample of 53 trading partners engaged in PTAs over the 1999-2003 period: (i) how effective are preferential trade agreements in fostering services trade?; (ii) what is the effect on services trade of a PTA delineated by type (goods vs. services) and form (North-North vs. North-South, symmetric vs. asymmetric)?; and (iii) is there an incremental trade effect from a services accord if a goods only agreement is already in place? Presenting his empirical results, MrShinghal said preferential services agreements had an average net trade-creating effect of 11.6per cent. Moreover, both goods trade and goods agreements could be seen as having a positive impact on services trade (a 10per cent increase in bilateral goods exports raises bilateral services exports by 1.7per cent on average). As might be expected intuitively, given the greater scope that exists in services for remote supply over electronic networks, the impact of distance on trade intensity is generally less important for services trade than for goods trade. Services trade between countries may be driven as much by differences in factor endowments as by increasing returns to scale. North-North agreements report both a positive and statistically significant trade effect ranging between 10.5 to 11.3per cent). And North-South services accords have the largest positive trade effect, at 16.8per cent. Further results of note are that trade alliances between the North and the South can be less than perfectly reciprocal yet still be trade-creating: asymmetric North-South accords had a trade effect ranging from 13.9 to 16.5per cent. Finally, the results of this work suggest that it may be more prudent to negotiate goods and services agreements in tandem rather than sequentially. Indeed, in the sample study, goods only agreements do not report a statistically significant services trade effect. However, when paired with services agreements, the services trade effect of each set of agreements is enhanced, thereby providing evidence of (once more intuitively assumed) complementarities between goods and services trade. 2. Questions and comments by the audience The panel, which provoked a lively and animated debate among participants, benefited from comments by Bernard Hoekman, Director of the Trade Department at the World Bank. On the issue of vertical specialization, MrHoekman suggested the desirability of focusing greater analytical attention on technology differences and teasing out the effects of geographical proximity (an issue that is earmarked for further research under the NCCR-Trade project). He further suggested that use be made of foreign direct investment (FDI) data alongside trade flows so as to enhance the analysis. On the latter issue, MrLopez-Gonzalez noted that data availability issues and the difficulty in differentiating between vertical and horizontal FDI meant that embedding FDI into the analysis would need to be done with caution. The actual role of tariffs and whether they were truly binding was also noted, as was the need to further research on differences in the processes of integration across regions (South-East Asia, EU and North American Free Trade Agreement (NAFTA)). Many participants were interested in better understanding the relevance of the work on VS in relation to inter-regional trade flows. The case of Mexico was also noted as one example of a country that espoused most-favoured nation (MFN) liberalization to import lower-cost intermediates from China to use in value-chain activity destined for the United States market. The discussion of MrGasioreks presentation emphasized the novelty of the research findings with respect to trade credit, which stand out relative to the standard post-crisis narrative. Also noted was the question of whether the credit risk variable used (LIBOR-OIS London Interbank Offered Rate-overnight indexed swap rate) accurately measured access to credit, and the extent to which it may be acting as a dummy picking up on other effects. In his comments, MrHoekman suggested the relevance of getting more information on how different countries may be reliant on trade credit, as well as on how firms relied on trade credit and the extent to which this could depend on the type of goods exported. 3. Conclusions and way forward The session on PTAs in services highlighted the desirability of replicating the analysis at the sectoral level depending upon data availability, and to see how the distance variable and the impact of goods trade varied across sectors and regions. Emphasis was also put on the need to update the study so as to measure the effects of the large number of PTAs concluded since 2003, the vast majority of which featured comprehensive services provisions. One suggestion that was made was to focus attention solely on those PTAs that have actually been implemented to see if the trends depicted in the research held.      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