World Economy

World in Dire Need of Healthy Trading System

World in Dire Need of Healthy Trading System World in Dire Need of Healthy Trading System

This is a challenging time for global trade. According to the current World Trade Organization new trade forecasts, global goods trade is expected to grow by 2.8%, making 2016 the fifth consecutive year of sub 3% growth. The gross domestic product is still the most critical variable in the trade expansion equation, and as long as GDP growth remains low, trade numbers are likely to follow a similar trend.

This sort of dip in the numbers is not unprecedented, and “we have experienced low trade growth in the early 1980s. Though we expect to come out of this pattern of low growth in the coming years—with trade growth forecast to pick up to 3.6% in 2017, it is nevertheless of some concern,” IPS quoted WTO head Roberto Azevedo as saying.

While the level of trade growth has stayed fairly constant in recent years, it is interesting to note that its composition is changing. A key driver of trade growth from 2011-2013 was import demand in Asia.

In the last two years this has shifted, with the US and Europe as the driving force of today’s modest growth, making up for slowdowns in Asia and elsewhere. In fact, if Asia’s contribution to trade had matched its average of recent years, world trade would have grown 3.5% in 2015, rather than 2.8%.

Rather than being an abstract indicator, trade growth, often matters because trade can act as a driver of broader economic growth and job creation. It certainly isn’t the only driver, but is an essential component of any strategy for sustainable economic growth.

  Removing Barriers

And so the current downturn leads us to the question: what can we do to respond? Governments have pushed monetary and fiscal policies to their limits in recent years but there is still room to move on trade. A more proactive approach could help to stimulate global demand.

One step would be for governments to remove the restrictive barriers introduced in recent years. Currently only 25% of these measures put in place by WTO members since the 2008 financial crisis have been removed. A shift in strategy here could help make a big difference.

“We can also put in force trade agreements we have reached recently. By implementing the Trade Facilitation Agreement alone, we could add another trillion dollars to global trade. This would include exports of about $730 billion from developing countries.

“Another step is, of course, striking new trade agreements. And we are seeing a lot of activity on this front both at the regional level, and through the WTO. While they have grown rapidly in recent years, bilateral and regional trade initiatives are not a new thing, pre-dating the creation of the global trading system.”

These two different approaches are frequently portrayed as incompatible, however, they do not require an “either/or” strategy and can be created and implemented to complement each other. “These different kinds of initiatives have long co-existed and complemented each other and I have no doubt that they will continue to do so.”

Today, virtually all WTO members are involved in at least one of these initiatives. Today there are 270 regional trade agreements or RTAs in force and have been notified to the WTO with over a third in the Asia-Pacific region.

The most recent examples in the region are the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership. And of course there are other important initiatives such as the Silk Road Economic Belt and the Maritime Silk Road, which attempt to build and develop links between several partners.

As production networks expand and regional and global value chains become more important, it is critical to minimize significant differences in legislation, rules and infrastructure, which impact international trade and investment between trading partners. This appears to be the case more and more in current RTAs and other regional trade networks.

Currently the WTO has 162 members with increasing numbers. The rules and regulations of the WTO covers 98% of global trade, therefore by and large, RTAs operate within these rules.