Standards, ‘offshoring’ and air transport focus of 2005 WTR

The report, written by economists in the WTO Secretariat, points out that such norms can deliver important benefits in terms of information for consumers, environmental protection and compatibility among related goods and services. But the report, which was released today, draws attention to the fact that technical standards can also be used as protectionist measures and can result in higher operating costs for developing country producers.

The third in an annual series initiated by Director-General Supachai Panitchpakdi, the 2005 WTR also includes analytical essays on offshoring services (a particular aspect of outsourcing), air transport services and the use of quantitative economic analysis in dispute settlement. The report also touches on recent and selected medium-term developments in global merchandise and services trade.

Offshoring services are not new, the report states, and are in fact no different from other forms of trade driven by comparative advantage. Moreover, the authors argue, the impact of offshoring services on production, employment and trade is less severe than suggested by some press reports and public commentary.

The report also discusses the role of the General Agreement on Trade in Services (GATS) in providing mutually beneficial opportunities for trade among countries via offshoring activities. It concludes that greater conceptual clarity between particular modes of supply (mode 1 — cross-border transactions, and mode 2 — consumption abroad), together with greater precision in the nomenclature used to describe service activities, could enhance the contribution of the GATS to more open trade. The report notes that the importance of these issues is not confined strictly to offshoring services.

In looking at trade in air transport services, the report traces the growing importance of air transport for international trade. Technological changes, combined with an evolving policy environment, have changed the face of the industry. It has become more competitive and more efficient. Different models have been adopted to meet new competition and growing demand for air transport services. Air carriers have chosen between a hub-and-spoke model and a point-to-point approach to service provision.

Competitive pressures have also led to a new generation of bilateral “open skies” agreements among governments, resulting in liberalization of service between countries. The GATS has exerted limited influence on competitive developments in the sector, and only covers a narrow range of relevant services — repair and maintenance services, the marketing and selling of air transport services, and computer reservation services. Differing views persist as to whether a multilateral approach would be more effective than existing arrangements in delivering mutually beneficial liberalization.

Quantitative economic analysis has been used with increasing frequency in dispute settlement. Two main areas of dispute settlement where quantitative analysis has proven relevant have been in considering the effects of particular policy measures on trade flows and the effect of imports on similar domestic product or their producers. The first of these questions — how policy interventions impact on trade flows — has arisen most often in relation to arbitration decisions following a violation (Article 22.6 of the Dispute Settlement Understanding). The set of issues relating to “like products” arise in procedures aimed at determining the existence of a WTO violation or in trade remedy cases.

The report stresses that quantitative analysis cannot offer definitive answers to questions of legal compliance, but rather may serve as an aid to understanding the impact of policy actions. Reliance on quantitative economic analysis is likely to grow in the future, as cases become increasingly “fact-intensive.”

The report also reviews recent trends in global trade, highlighting that real merchandise trade grew by 9 per cent in 2004, the strongest performance since 2001. Trade in services expanded by 16 per cent, measured in nominal terms. This rapid growth in trade was driven largely by the surprisingly strong global economic performance last year, say the report’s authors. Higher oil and commodity prices and a recovery in trade in office and telecom equipment helped developing countries see their share in world merchandise trade rise to 31 per cent, the highest since 1950.