Abstract

WTO obligations, including notification requirements, and specific accession commitments are complex. Most of them become effective from the date of WTO membership. From a centralized accession process, new members now suddenly have to adapt to a decentralized WTO procedures and participate in parallel in its multiple bodies. The twenty years of post-accession experience of Article XII members suggests that many, especially least-developed countries (LDCs), have faced major implementation challenges until a system of post-accession support was introduced recently. This chapter reviews the Post-Accession Support Platform (PASP), a framework developed by the WTO Secretariat to facilitate the transition from acceding economy to full-fledged WTO member. The PASP offers individual post-accession implementation strategies, technical assistance and capacity-building, best international practices, a dedicated website and internal Secretariat procedures that can be used to support new WTO members. The chapter reviews the use of the PASP by two recently acceded LDCs – Afghanistan and Liberia – and finds early signs of improved effectiveness in the WTO post-accession transition process.

Abstract

The world economy is showing signs of recovery after several years of lacklustre performance, although major policy uncertainties may easily upset this fragile trend. To jumpstart economies and trade after the financial crisis of 2008–9, governments across the world employed a traditional mix of fiscal, monetary and structural policies. These efforts helped to prevent a deeper crisis but fell short of pulling the world out of a period of stagnation in 2012–16. Trade, in particular, slowed relative to its historical performance and to overall economic growth. Meanwhile, political and social pressures have led to inward-looking policies in large countries. Other challenges – from civil and military conflicts to scattered terrorism – have also contributed to this inward turn. Against this background, this chapter discusses the need for a new and more flexible global economic architecture. It would require reforms at all levels, starting with revamping the structural foundations for growth and trade, applying solid, ground-level macroeconomic policies in individual countries, and rebuilding the upper floors of multilateral cooperation, i.e. upgrading it and making it more adaptable and responsive to the requirements of the twenty-first century. In the trade area, key pillars to support this structure include innovative mechanisms of trade liberalization in both new and traditional areas, increased inclusiveness of trade, recognition and financing of adjustment costs, effective communication on trade, a redefined role and functions for the WTO, upgraded multilateral rules and strong leadership. With radical changes needed, WTO accessions have already contributed, and could contribute even more, to each of these pillars.

Abstract

Important synergies and complementarities exist between trade liberalization initiatives and the application of measures to suppress anti-competitive practices or arrangements. Both anti-competitive practices of firms and state-orchestrated arrangements that restrict competition can undermine the gains from trade in myriad ways. Moreover, trade liberalization can be a powerful tool for addressing competition policy concerns. Whether there is a need to develop for more explicit linkages between national competition policies and the multilateral trading system remains an unresolved question in debates surrounding the future of the World Trade Organization (WTO). The role of competition policy is, however, increasingly being addressed by working parties during the accessions of new WTO members. This chapter finds that, in a vast majority of accessions, the acceding economy is requested to provide information on its domestic competition policy regime. In approximately 80 per cent of all accessions, the acceding parties have made notifications on aspects such as the objectives of the regime, its enforcement mechanisms by relevant agencies, as well as on work under way to put in place an effective competition regime where one is not already extant. This, in itself, shows a clear recognition and acceptance by WTO members of the importance of competition policy as a tool of economic integration. The complementarity between WTO law and competition policy, however, is broader than what is reflected in notifications and observations regarding competition legislation per se. Consequently, the analysis in this chapter also presents an in-depth study of the wider impact of competition in the WTO accession process, taking into account the information provided on aspects of the domestic regime dealing with state monopolies and the treatment of state-owned enterprises (SOEs).

Cost-benefit analysis often requires us to predict the future. Whether it is desirable to begin a project depends on what we expect will happen after we have begun. But, as mere mortals, we rarely are able to make precise predictions about the future. Indeed, in many situations analysts can be certain that circumstances largely beyond their clients’ control, such as epidemics, floods, bumper crops, or fluctuations in international oil prices, will greatly affect the benefits and costs that would be realized from proposed policies. How can analysts reasonably take account of these uncertainties in CBA?

In this chapter, we consider three topics relevant to uncertainty: expected value as a measure reflecting risks, sensitivity analysis as a way of investigating the robustness of net benefit estimates to different resolutions of uncertainty, and the value of information as a benefit category for CBA and as a guide for allocating analytical effort. Expected values take account of the dependence of benefits and costs on the occurrence of specific contingencies, or “states of the world” to which analysts are able to assign probabilities of occurrence. Sensitivity analysis is a way of acknowledging uncertainty about the values of important parameters in our predictions—it should be a component of almost any CBA. When analysts have opportunities for gaining additional information about costs or benefits, they may be able to value the information by explicitly modeling the uncertainty inherent in their decisions. A particular type of information value, called quasi-option value, is relevant when assessing currently available alternatives that have different implications for learning about the future.

Microeconomic theory provides the basic technical foundations for CBA. This chapter begins with a review of the major concepts of microeconomic theory as they apply to the measurement of social costs and benefits. Most of these concepts should be at least somewhat familiar from your previous exposure to economics. After that we move to welfare economics, which concerns the normative evaluation of markets and of policies. We explain how to use microeconomic theory to assess benefits, costs, and net social benefits in CBA.

For purposes of simplicity, we assume the presence of perfect competition throughout this chapter. Specifically, we assume that there are so many buyers and sellers in the market that no one can individually affect prices, that buyers and sellers can easily enter and exit the market, that the goods sold are homogeneous (i. e., identical), that there is an absence of transaction costs, that information is perfect, and that private costs and benefits are identical to social costs and benefits (i. e., there are no externalities). Chapter 4 considers how to measure benefits and costs when some of these assumptions do not hold; that is, various forms of market failure are present.

It seems only natural to think about the alternative courses of action we face as individuals in terms of their costs and benefits. Is it appropriate to evaluate public policy alternatives in the same way? The CBA of the highway sketched in Chapter 1 identifies some of the practical difficulties analysts typically encounter in measuring costs and benefits. Yet, even if analysts can measure costs and benefits satisfactorily, evaluating alternatives solely in terms of their net benefits may not always be appropriate.

An understanding of the conceptual foundations of CBA provides a basis for determining when CBA can be appropriately used as a decision rule, when it can usefully be part of a broader analysis, and when it should be avoided. The goal of allocative, or Pareto, efficiency provides the conceptual basis for CBA. In this chapter we provide a nontechnical introduction to Pareto efficiency. We then explain its relationship to potential Pareto efficiency, which provides the practical basis for actually doing CBA. Our exploration of the roles of Pareto efficiency and potential Pareto efficiency in CBA provides a basis for distinguishing it from other analytical frameworks. It also provides a basis for understanding the various philosophical objections commonly made against the use of CBA for decision making.

Cost-benefit analysis assesses the efficiency of alternative courses of action. It requires prediction of the impacts of the alternatives and their monetization. The first ten chapters lay out the conceptual foundations for predicting and monetizing. This chapter and the following five chapters provide methods and resources for actually completing these tasks in practice. This chapter provides a brief overview of the various approaches to prediction and monetization. The following five chapters describe these approaches in detail

Keep in mind that good CBA predicts and monetizes all the impacts of the alternative policies being considered. Some impacts, such as the use of real resources to implement policies, can usually be predicted with considerable confidence in fairly straightforward ways and monetized directly with market prices. Other impacts, especially those involving people changing their behaviors, can only be predicted indirectly, often based on statistical inference or perhaps even theory alone, and therefore they may be very uncertain. Furthermore, monetizing often requires analysts to use shadow prices, such as willingness to pay for reductions in mortality risk, that are not directly revealed in markets and thus also uncertain. CBA requires analysts to accept these uncertainties to produce a comprehensive assessment of alternative policies.

Imagine that you completed the first three steps in CBA set out in Chapter 1. You have identified the alternative policies, determined standing, and catalogued the relevant impacts with appropriate units of measure. Next you must predict the impacts of each alternative and monetize them. Much of the effort in a typical CBA goes into these two steps. Unlike most social science research, where one can choose to focus on some impacts, perhaps because data are available to support estimation of past effects as the basis for prediction, you do not have the luxury of focusing on some impacts and ignoring others. You must make predictions of all impacts even in the absence of strong supporting evidence. To do this, you should use policy research, relevant theory, and, when all else fails, learn about the subject and make informed guesses. By all means be self-conscious about your uncertainties and be forthright in presenting them. Because of these uncertainties, Monte Carlo simulation and the other forms of sensitivity analyses illustrated in Chapter 7 are essential components of almost any CBA for conveying the degree of certainty in the ultimate CBA prediction of net benefits.

In conducting CBAs of government policies, there is a natural tendency to list as many effects of the policies as one's imagination permits. For example, an improvement in public transportation in a particular city may increase bus usage and reduce car usage. It may also reduce downtown pollution and congestion. In addition, it may reduce the demand for automobile repairs, parking places, and gasoline.

To assess these effects, one must first determine which occur in primary markets and which occur in secondary markets. Primary markets refer to markets that are directly affected by a policy, while secondary markets are markets that are indirectly affected. The changes in bus usage previously mentioned clearly occur in the primary market for public transportation. The reductions in pollution and congestion also can be thought of as occurring in the primary market for public transportation, though these particular impacts are in the external, or missing, part of that market. Any effect that occurs in a primary market should be accounted for in a CBA. On the other hand, effects on the demand for auto repairs, parking places, and gasoline occur in secondary markets and, as will be seen, often can (and indeed should) be ignored in conducting CBA. This last group of effects is often referred to as secondary, second-round, spillover, side, pecuniary, or indirect effects.

While Chapter 4 examined the benefits and costs of government policies that occur in primary markets, this chapter focuses on policy impacts in secondary markets. As in Chapter 4, we distinguish between efficient and distorted markets. In addition, the chapter takes a brief look at the special implications of secondary market effects for local communities, as the benefits of such effects are often touted by advocates of local infrastructure projects such as sports stadiums and convention centers.

Abstract

Seychelles became a member of the World Trade Organization (WTO) in 2015 after an accession process that took almost twenty years to complete. Since the relaunch of its accession process in 2009, Seychelles has undertaken significant trade reforms as part of a broader economic modernization agenda. These trade reforms were anchored on the reform commitments taken by the government as part of accession to the WTO. Although it is still too early to evaluate the full impact and benefits of WTO membership, this chapter offers insights into the negotiation process and weighs the costs and benefits of WTO accession from the perspective of a small country. The main lessons for small economies aspiring to become WTO members are that: (i) WTO accession is a long and arduous process that makes heavy demands on a small country's resources; (ii) small and developing countries should not expect any special treatment from larger and older members of the WTO; (iii) accession provides a good platform for modernization of a country's trade regime; and (iv) accession can have a positive impact on a country's ratings among rating agencies, international financial institutions and private investors.

Abstract

Geographical indications are signs used to identify the origin of goods characterized by a given quality or reputation that is essentially linked to their geographical origin. They preserve traditional knowledge, foster the growth of local production and satisfy the needs of increasingly quality-conscious and demanding global consumers. Governments acceding to the World Trade Organization (WTO) have reformed their rules on geographical indications in order to achieve WTO consistency. In doing so, they have added value to the multilateral trading system by clarifying the scope of WTO obligations in the field of geographical indications in the following ways: minimum standards of protection; requirements for application to geographical indication protection; the relationship between geographical indications and trademarks; and the scope of substantive provisions with regard to geographical indications. This heightened understanding of the regulation of geographical indications has set new standards in the multilateral trading system. Acceding economies have followed international best practices and sometimes gone a step further by undertaking commitments that exceed those in effect among incumbent WTO members. Rule-making on geographical indications has also helped to prevent disputes on related issues. The lessons learned in the WTO accession process can serve other developing countries and emerging economies to unravel the legal and economic potential of geographical indications.

This chapter focuses on estimating the benefits and costs of program interventions by using experimental and quasi-experimental designs. The chapter first describes experimental and quasi-experimental designs, indicating how they are used in estimating the impacts of social programs—for example, health, education, training, employment, housing, and welfare programs. The chapter then describes how these impacts are incorporated into CBA of employment and training programs. The chapter concludes by examining actual CBAs of employment and training programs that were targeted at welfare recipients. The chapter provides numerous illustrations of how concepts developed earlier in this book can be used in actual cost-benefit analyses.

Akey concept for valuing policy impacts is change in social surplus. As discussed in Chapters 3 and 4, changes in social surplus are represented by areas, often as triangles or trapezoids, bounded by supply and demand curves. Measurement of changes in social surplus is relatively straightforward when we know the shapes (functional forms) and positions of the supply and demand curves in the relevant primary market, before and after the policy change. In practice, however, these curves are usually not known. Analysts have to estimate them or find alternative ways to measure benefits and costs. In the previous chapter, we discuss how such information can be gathered from demonstrations. In this chapter, we discuss direct estimation of these curves.

We focus on estimating demand curves because, in practice, analysts are more interested in estimating changes in consumer surplus than estimating changes in producer surplus. There are three main reasons. First, changes in producer surplus are often offset by changes in consumer surplus, and thereby constitute transfers. Second, they are often negligible. Third, for ex post CBA, changes in producer surplus can usually be computed more easily from changes in profits, which can often be obtained directly from affected firms. There are, however, two major situations when it is important to estimate the supply curve. One pertains to unemployed labor, which we discuss in detail in Chapters 4 and 12. The second arises when the government intervenes in otherwise efficient markets for capital, foreign exchange, labor, and other productive assets. We discuss these issues in Chapter 17.

For goods traded in well-functioning markets, we can usually observe the market clearing price. We may also observe the aggregate quantity bought and sold so that we have the point of intersection of the demand and supply curves. The task in this chapter is to estimate changes in social surplus where there is limited information. We consider three situations. First, we suppose that we have only one observation on the demand curve but previous research provides knowledge of its shape (functional form), and either its elasticity or slope. Second, we suppose that we have a few observations (points) on the demand curve. Third, we suppose that we have many observations of prices and quantities from different regions or from different time periods. In the first two situations we can make simple extrapolations.