1.2. Sector-Specific Liberalisation 1.2.1. Liberalisation of goods markets

When the GATT was founded in 1947, tariffs on industrial goods averaged around 40%. Today, average import tariffs are lower than 5% with further reductions to be implemented. About half of all industrial products traded across borders are not taxed at all anymore. Nevertheless, there was a countervailing trend: more and more non-tariff trade barriers were substituted for tariffs. This problem has long been recognised, however. One result of the Uruguay-round was that all non-tariff trade barriers should be transformed into tariff equivalents and that these should subsequently be reduced. These trends have led to a reduction in the costs that need to be incurred in order to comply with state-mandated barriers to trade.

As just pointed out, the protection of intellectual property rights was improved by establishing TRIPS as a part of the WTO. The more effective protection of intellectual property rights means that the costs of foreign direct investments have been reduced because companies investing – and producing – abroad need to spend fewer resources on protecting their rights.

The substantial reduction in international interaction costs is the result of the described liberalisation. For many firms, the decomposition of the value chain into many parts that are produced in various countries becomes the cost minimising strategy. To the degree that the liberalisation of the goods markets has led to a decrease in transaction costs, the answer to the make-or-buy question will be modified. Looked at from the other side, this trend means that for a number of companies, entry into markets that had until now been protected by barriers ecomes attractive. This is, of course, also true on the procurement side with global sourcing being the pertinent catchword.

The WTO also includes an agreement on the harmonisation of standards (The Technical Barriers to Trade Agreement). Its consequences are primarily relevant for industrial goods. Standards have been a traditional non-tariff trade barrier, their effect often being the protection of domestic producers. The harmonisation of standards will often lead to increased competitive pressure precisely because the protection awarded by way of the standard has ceased to exist. But the harmonisation of standards can have yet another effect: it can also accelerate the decomposition of the value chain. If suppliers of various inputs can guarantee that their products comply with certain international standards, this can substantially decrease transaction costs (in particular monitoring costs) and this can make supply from independent suppliers attractive. In addition to leading to lower monitoring costs, another component of transaction costs is also affected, namely the search costs that have to be incurred in order to find a contracting partner.