Opening of world trade still unfinished postwar business
Economists from the IMF, World Bank and World Trade Organisation (WTO) argue trade integration can play a larger role in boosting shared prosperity and unlock opportunities provided by fundamental changes in the global economy.
A new report, entitled Reinvigorating Trade and Inclusive Growth, issued on September 30, finds that the opening of trade has played a key role in lifting living standards and reducing poverty since World War 2, but that this work remains incomplete.
Trade reform has not sufficiently kept pace with the changing landscape of services trade, digital technologies and foreign direct investment (FDI).
Much also remains to be done in areas such as market access for goods and regulatory co-operation. Greater openness in such areas, the report claims, would promote competition, lift productivity and raise living standards. In many other domains, such as the rural economy, gender and smaller enterprises, trade-related reforms are important to foster more inclusive growth and increase productivity.
Moreover, the report notes that current trade tensions may in part be rooted in issues that have been left unresolved on the negotiating table for too long. Co-operative action to secure greater, more durable openness could help to resolve these issues.
While trade has been vital in reducing poverty over the years, much more remains to be done, says WTO directorgeneral Roberto Azevêdo. He says many WTO members recognise that improvements are necessary in many areas of trade policy to keep up with the evolving needs of their economies and people.
The report says focus on trade tensions threatens to obscure the great untapped benefits possible from further trade reform. The opportunities provided by information technology and other changes in the global economy are yet to be reflected in modern areas of trade policy, such as services and electronic commerce.
The report contends that flexible approaches to WTO negotiations may be the key to reinvigorating trade reform.
“Despite the benefits at stake ,and with important exceptions such as the WTO Trade Facilitation Agreement, trade reform has lagged since the early 2000s. For much of this period, governments focused their efforts in the WTO on a single negotiating approach.
“Now, as groups of WTO members pursue joint initiatives in several areas, attention is turning to how other negotiating approaches including some used effectively in the past can be leveraged so that trade again plays its role in driving higher global economic prosperity.”
The report says building greater, more durable openness should be part of a broader effort to strengthen and reinvest in the global trading system.
“The system of global trade rules that has nurtured unprecedented economic growth across multiple generations faces tensions.
“Governments need to address outstanding questions involving, for example, the WTO dispute system and the reach of subsidy disciplines.
“Co-operative action to secure greater openness, an imperative in its own right, could also help resolve the trade issues.”
The report contends that changes in newer areas of the global economy are not being reflected in global trade policy, stifling future prosperity.
“Services comprise twothirds of global GDP and employment, and [on a valueadded basis] nearly half of global trade, yet barriers to services trade today are roughly as high as those to trade in goods a half century ago. Digital technologies make more services tradable across borders. Trade and investment decisions are increasingly complements, rather than substitutes, yet policy barriers still obstruct much FDI and the lack of a common template for thousands of international investment agreements creates a spaghetti bowl of provisions for investors and governments.
“The rise of global value chains and trade in inputs lends added importance to regulatory co-operation, trade and investment facilitation, and enabling policy environments for private sector innovation.”
Economists from the IMF, the World Bank, and WTO make a case in the report that trade can be a powerful force for more inclusive growth, including by lowering poverty and by opening opportunities to small firms, farmers and fishermen, as well as women.
The report says distortions to agricultural trade affect market access and food price volatility, hurting both poor farmers and poor consumers. Limiting fisheries subsidies could help to secure the livelihoods of coastal communities and the sustainability of fish stocks.
“In all of these areas trade helps to drive female employment and economic empowerment. However, given the potential for trade and other structural change to create adjustment pressures for certain sectors, groups or regions, triggering discontent among some segments of society, it is also important to have in place appropriate complementary policies.”
The path forward needs to heed the hard lessons of nearly two decades of WTO talks and to recognise a more complex trade policy landscape, according to the report.
“The WTO institutional and legal framework, and its nearglobal membership, have unique advantages. Yet reliance on an approach in which all members must agree on all issues risks driving negotiating activity outside the WTO. Agreeing among so many members, each with unique challenges and priorities, has proven difficult.”
However, the report underlines that at their July 2017 meeting in Hamburg Group of 20 (G20) leaders emphasised how open investment and trade promote growth, productivity, jobs and development.
The report supports the G20 leaders’ call for exploring the potential for reforms in certain areas to affect aggregate economic outcomes such as productivity and income levels; areas of reform that bear primarily on inclusiveness; and how co-operative reforms can be achieved.
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