Trade Adjustment Costs in Developing Countries: - World Bank ...

Adjustment to Foreign Changes in Trade Policy Under the WTO System 239from the perspective of the exporters abroad. 4 Improvements in data availabilityare making these sorts of approaches more plausible, and in Section 3 we describea number of research approaches that adapt the identification strategy to exploita smaller-scale approach. 5 In particular, several papers take advantage of product-specificor industry-specific exogenous changes in foreign market access aspart of an identification strategy to estimate the impact of policy changes abroadon the domestic adjustment process.Before turning to these specific examples of research, the next section briefly describesthe most relevant features of the WTO: the foundation of the current rulesbasedtrading system. Section 2 therefore describes the key elements of the WTOthat establish the exceptions and procedures, that is, the WTO features thatnational governments use and those which create the identification opportunitiesthat the research described in Section 3 exploits. More than 60 years of GATT/WTOnegotiations have resulted in a WTO agreement that is largely responsible both fortoday’s liberal trading environment and the rules under which certain forms oftrade policy changes occur. Given the lack of major reform proposals in the ongoingDoha Round of WTO negotiations, these rules and procedures governing howthe current system accommodates national changes in trade policy at the industryor product level are likely to become even more relevant in the future. 6 Especiallyas more developing countries increase their openness to trade and are encouragedto adopt the WTO system’s approach to accommodating national changes in tradepolicy through ‘exceptions’ such as safeguards and antidumping, research in thisarea is increasingly important and relevant for policy.2. INSTITUTIONAL BACKGROUND: USING THEWTO SYSTEM FOR IDENTIFICATIONIn this section we briefly describe two elements of the current WTO system thatmay provide fertile testing environments for research on how foreign trade pol-4 To see one important part of the problem, consider the case of an exporting firm that serves twoor more foreign markets. If all of the foreign markets don’t make their detailed trade policy data easyto observe (and collect), the data problem can become insurmountable, as it is impossible to controlfor other foreign countries’ trade policy changes that may equally affect the exporting firm’s adjustmentprocess.5 Papers such as Trefler (2004) and Lileeva and Trefler (forthcoming) for the Canada–US Free TradeAgreement, and Bustos (forthcoming) for MERCOSUR do exploit the fact that certain countries’ exportsmay be highly concentrated toward one foreign market, and thus when that foreign market undertakesadditional (and preferential) import liberalization, the concern of not having access to dataon trade policy changes in other foreign markets is less problematic. However, a secondary concernfor even these types of studies could be that the export market access changes embodied in these tradeagreements may not have been exogenous or unanticipated, which may lead to additional challengesfor identification.6 This assumes there is no large-scale protectionist retreat associated with the global financialcrisis. While the severity of the global recession caused by the crisis remains uncertain, as is theextent of an associated protectionist response, early evidence from policy changes during the crisisindicates that countries may be refraining from large-scale protectionism. Bown (2009a) presentssome evidence of a moderate increase in the use of new import restrictions in the form of antidumpingand safeguards, at least through the first quarter of 2009, associated with the crisis. On more generaltrends in protectionism during the crisis, see the other contributions in Evenett and Hoekman (2009).