RESOURCES

THE HARMONIZED SYSTEM: AMENDMENTS AND THEIR IMPACTS ON WTO MEMBERS' SCHEDULES. By Dayong Yu. World Trade Organization, 2008. As an internationally standardized product nomenclature, the Harmonized System (HS) is used by WTO Members in their schedules of concessions and in the definitions of product coverage for a number of WTO agreements. The Harmonized System is normally amended by the World Customs Organization every four to six years. These amendments pose considerable challenges for the WTO and its Members. On the one hand, Members need to periodically update their historical schedules of concessions into the latest nomenclature. On the other hand, these amendments may have implications for the definition and thus also the implementation of some WTO agreements where the product coverage is defined in terms of the HS. In either case, the product codes and/or descriptions in the old HS version need to be transposed precisely into those in the new version of HS nomenclature in order to retain the historical concessions or the product coverage unchanged. Given the complexity of HS amendments, this process could be very technical and sometimes tricky. The paper is available online at http://www.wto.org/english/res_e/reser_e/ersd200802_e.htm.

TRADE CREATION AND DIVERSION REVISITED: ACCOUNTING FOR MODEL UNCERTAINTY AND NATURAL TRADING PARTNER EFFECTS. By Theo Eicher, Christian Henn, and Chris Papageorgiou. International Monetary Fund, March 2008. Trade theories covering Preferential Trade Agreements (PTAs) are as diverse as the literature in search of their empirical support. To account for the model uncertainty that surrounds the validity of the competing PTA theories, we introduce Bayesian Model Averaging (BMA) to the PTA literature. BMA minimizes the sum of Type I and Type II error, the mean squared error, and generates predictive distributions with optimal predictive performance. Once model uncertainty is addressed as part of the empirical strategy, we report clear evidence of Trade Creation, Trade Diversion, and Open Bloc effects. After controlling for natural trading partner effects, Trade Creation is weaker - except for the EU. To calculate the actual effects of PTAs on trade flows we show that the analysis must be comprehensive: it must control for Trade Creation and Diversion as well as all possible PTAs. Several prominent control variables are also shown to be robustly related to Trade Creation; they relate to factor endowments and economic policy. The paper is available online at http://www.imf.org/external/pubs/cat/longres.cfm?sk=21806.0.

ECONOMIC PARTNERSHIP AGREEMENTS: A 'HISTORIC STEP' TOWARDS A 'PARTNERSHIP OF EQUALS? By Mareike Meyn. Overseas Development Institute 2008. This paper argues that the (interim) EPAs initialled between the EU and less than half of all ACP states at the end of last year do not represent a 'historic step' in EU-ACP relations. The majority of EPAs concluded to date are neither complete nor comprehensive trade agreements. Almost all signatory states were countries that would bear substantial economic costs if they lost their preferences in the EU market. Many ACP states submitted hastily drawn up liberalisation schedules that did not consider whether their liberalisation commitments were in line with their neighbour. This has significant implications for future regional integration processes. To revise individual timetables and bring them into line on a regional basis, as envisaged by the Commission, will be a mammoth task. It is further argued that the enforcement of the EPA implementation is unlikely in some cases given the decreasing attractiveness of the EU market, and the Commission's dwindling capacity to sanction non-compliance by withdrawing preferences. If the EU wants to see EPAs implemented, it is vital that both the process and outcome are owned and supported by both sides. The paper is available online at http://www.odi.org.uk/publications/working_papers/WP288.pdf.