Introduction

A core issue for the multilateral trading system over the years has been the reach of its competence. Of all the sources of tension that have confronted the General Agreement on Tariffs and Trade/World Trade Organization (GATT/WTO) system over the years, this is probably the greatest. Effective international cooperation requires a shared view on the content and purpose of the trading system. Yet agreement has often proved elusive and negotiated outcomes have occasionally been challenged by governments even though they have subscribed to them. The debate in the late 1970s and 1980s about whether trade in services had a place in GATT, for example, has been followed by similar discussions on intellectual property rights (IPRs), labour rights, the environment, investment and competition. Differing views on these matters have often influenced the pace of progress in rounds of multilateral trade negotiations.

At first sight, the WTO's mandate seems to be well defined: it is an organisation that deals with the rules of trade between its members. Why is it then that WTO Agreements deal with internal measures and why has the question of how the WTO deals with internal measures become so contentious? The most straightforward answer to the first question is probably that most internal measures have an effect on trade flows. As a result, a body that provides rules on trade flows can be expected to have to take a stance with respect to internal measures.

Over the past decades trade has played an increasingly important role in the world economy and has contributed significantly to economic growth both at the global level and within individual countries. Many have taken advantage from trade through increases in wages and household incomes, and this has in particular been the case for those involved in export-related activities. Being connected to the world economy may not give any guarantee for economic growth, but there have not been many examples – if any at all – of countries that managed to significantly enhance their growth performance while staying disconnected from global production and financial networks.

Through its contribution to prosperity, trade has certainly contributed to political stability and peace in this world in the past decades. In order to continue to do so, though, a number of challenges need to be overcome. Failure to overcome those challenges may turn trade into a destabilizing factor. It is especially important that we reflect upon these obstacles in times of economic instability. I want to focus on two challenges here: the need to provide protection to those who become more vulnerable in an open world and the need to guarantee that the gains from trade are distributed in a way considered acceptable by societies.

After having continuously outpaced growth over a period of three decades, export growth was negative in 2009 and dropped by 12.2 per cent in volume terms.

Carsten Fink and Deunden Nikomborirak in chapter 4 in this volume bring us one step further in understanding the sometimes blurry but at the same time complex concept of services trade. Services trade currently represents around one fifth of total trade at the global level and it thus appears to be crucial for economists and policy-makers to get a better understanding of its intricacies. In this respect, their chapter provides very useful insights, in particular by emphasising the differences in the design of rules of origin for services and for manufacturing trade.

In the case of manufacturing trade, rules of origin tend to be based on a value-added criterion. Only goods that have been transformed sufficiently on the territory covered by the regional trade agreement, i.e. only goods to which sufficient value has been added within the relevant territory, are eligible for preferential treatment. The design of rules of origin for services trade differs significantly from this approach. In particular, instead of targeting the traded services and their level of transformation within the relevant territory, they tend to make reference to characteristics of services suppliers. In the case of companies, they, for instance, make reference to their incorporation under domestic law, their level of domestic employment or to domestic ownership and control, where ‘domestic’ refers to one of the members of the regional agreement. They also make reference to the level of business operations within the relevant territory.