World Trade Report 2005

The World Trade Report (WTR) takes up a number of key trade policy issues facing the international trading system for analysis and discussion. It seeks to deepen public understanding of current trade policy issues and to contribute to more informed consideration of the options facing governments. The core topic in this year’s report is standards and international trade.

The first part of the report focuses on recent trends in international trade development:

• the year 2004 saw impressive growth in trade, against a background of strong output growth. At 9 per cent in real terms export growth was twice as fast in 2004 as in 2003, and the third highest over the last decade
• all regions shared in this expansion to a degree, but 2004 was a particularly good year for some commodity-exporting developing countries, including some in Africa; other regions that enjoyed strong trade performance were South and Central America, Asia and the Commonwealth of Independent States
• prospects for trade growth in 2005 are not as promising as in 2004, but at a predicted real rate of 6.5 per cent, trade would still expand faster than the average rate since 1994
• downside risks in the world economy include the dampening effect on economic activity of high oil prices, as well as persistent sluggishness in some economies, and interest rate and exchange rate volatility arising from imbalances in others
• since 2000, growth in world exports of pharmaceutical products has been four times stronger on average than the equivalent figures for other chemical products and manufactures as a whole.

The second part of the report focuses on this year’s core theme- standards and international trade:

• while national welfare in the standard-imposing country will increase if a standard is well designed, global welfare may not necessarily be improved as a consequence of the trade effects of the standard
• in the case of local production externalities, it makes sense to apply mandatory standards only to domestic producers while applying voluntary standards to foreign producers
• in the case of global environmental externalities, it is likely that no standard will ever be fully optimal since individual countries will not take into account the effect of their actions on other countries
• industries characterised by network externalities are standards-intensive while technical regulations are primarily focused on problems of information asymmetry
• standards do not significantly increase the costs of large firms in OECD countries although smaller firms may face greater difficulties. In the case of firms in developing countries, the story is more complex - costs vary enormously across countries and depend on a range of factors
• comparing the effectiveness of mutual recognition with harmonisation in increasing trade flows, early evidence based on the EU experience suggests that mutual recognition has greater trade enhancing effects.

The report also features a number of shorter essays on three other topics – the use of quantitative economic analysis in WTO dispute settlement, international trade in air transport services, and offshoring services.