## _Quantification challenges: Some analytical issues going forward_

Looking ahead, there is a need for stronger analytical underpinnings for any quantification exercise. Ideally, the “value” of a commitment must be evaluated in light of the objective that the provision or the deep trade agreement is trying to achieve. In other words, depth indicators could use different weights depending on whether the outcome variable is market access, welfare or another metric. For trade policy, market access may seem to be the most obvious metric, but for intellectual property rights, welfare may be the more relevant. In still other areas, such as competition policy, both might be relevant: the market access measure would include only provisions restricting barriers to foreign entry and operation while the welfare measure would include provisions requiring action against anti-competitive behavior affecting consumers.

One indicator cannot provide a measure of both the trade distortions a country imposes on its trading partners (market access) and the trade distortions a country imposes on itself (welfare). For a market access-based measure in the goods context, the relevant question could be: what is the uniform tariff that if imposed on home imports instead of the existing structure of protection would leave aggregate imports at their current level? And for a welfare-based measure: what is the uniform tariff that if applied to imports instead of the current structure of protection would leave home welfare at its current level? The relationship between the two measures is likely to vary across policy areas: positive correlation for tariffs; perhaps negative for environmental standards; and ambiguous for intellectual property rights.

A further issue relates to whether we should be interested in what legal commitments do to the level of a policy or to its variance. Provisions such as the elimination of tariffs, or of a national treatment rule in services or government procurement, fix the level of protection at zero. Provisions which legally bind policy (e.g., the permissible levels of fees, subsidies or preferences) truncate the distribution of possible policy outcomes by reducing the variance and hence the expected level of protection. Provisions which reduce discretion, such as rules on customs valuation, licensing or procurement procedures, narrow the distribution of possible policy outcomes.

Finally, we also need to consider whether we should assess agreements per se or agreements relative to applied policies. If we have the relevant data, the mean and variance shift would ideally be assessed relative to the prevailing policy (and not just the law or policy on paper but how it is implemented). For example, a legal binding tariff at 10 percent might have a different value depending on whether the existing tariff was 5, 10 or 20 percent. The creation of new databases on applied policies in goods and services trade may facilitate such analysis.

# 5. Conclusions

The _World Development Report 2009_ made the case that “thicker” borders between countries hurt economic growth, especially in developing countries. Policies that directly or indirectly restrain the international mobility of goods, services, capital, people and ideas limit, among other things, the scale of the market, which is vital for development.<sup>20</sup> Deep trade agreements aim at establishing the rights of economic integration, protecting these rights from importing governments’ actions that could undo them, and regulating actions of exporters that can have negative welfare effects. These agreements have

> 20 World Bank 2009.

21