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WTO Highlights Policy Challenges Associated with Rapid Changes in World Trade

Monday, July 22, 2013
Sandler, Travis & Rosenberg Trade Report

The World Trade Organization’s 2013 World Trade Report finds that the future of world trade and the global trading system will be shaped by a range of economic, political and social factors, including technological innovation, shifts in production and consumption patterns, and demographic change. Highlights of this year’s report include the following.

Trends in international trade

 

- In the last 30 years, trade in merchandise and commercial services has increased by about 7% per year on average, reaching a peak of $18 trillion and $4 trillion, respectively, in 2011. When trade is measured in value-added terms, services play a larger role.

- Between 1980 and 2011, developing economies raised their share of world exports from 34% to 47% and their share of world imports from 29% to 42%.

- For a number of decades, world trade has grown on average nearly twice as fast as world production, reflecting the increasing prominence of international supply chains and hence the importance of measuring trade in value-added terms.

- In a dynamic economic and open trade environment, developing countries are likely to outpace developed countries in terms of both export and GDP growth by a factor of two to three in future decades.

Factors affecting international trade

- Demographic change affects trade through its impact on countries’ comparative advantage and on import demand. An aging population, migration, educational improvements and women’s

participation in the labor force will all play a role in years to come, as will the continuing emergence of a global middle class.

- Investment in physical infrastructure can facilitate the integration of new players into international supply chains. The accumulation of capital and the build-up of knowledge and technology associated with investment, particularly foreign direct investment, can also enable countries to move up the value chain by altering their comparative advantage.

- Countries representing 20% of the world’s total population accounted for about 70% of research and development expenditure in 1999 but only about 40% in 2010. Technology spill-overs are largely regional and stronger among countries connected by production networks.

- The shale gas revolution portends dramatic shifts in the future pattern of energy production and trade as North America becomes energy sufficient. Increasing water scarcity in large swaths of the developing world may mean that the long-term decline in the share of food and agricultural products in international trade might be arrested or even reversed.

- Ample opportunities exist for policy actions at the national and multilateral level to reduce transportation costs and offset the effect of higher fuel costs; e.g., by improving the quantity and

quality of transportation infrastructure, successfully concluding the Doha Round negotiations on trade facilitation, introducing more competition on transport routes, and supporting innovation.

Trade openness

- Job losses in the short run can exert pressure on governments to use barriers to trade. In the end, however, it is open economies with a well-trained workforce, a business-friendly environment and an effective social protection system that tend to be better placed to adjust successfully.

- The expansion of trade needs to be supported by a stable financial and monetary system that delivers a sufficient volume of trade finance at an affordable cost, particularly for developing countries, as well as macroeconomic policies that promote exchange rate stability.

Prospects for multilateral trade cooperation

- Some of the main trends that will affect world trade in the coming decades are the emergence of international value chains, the rise of new forms of regionalism, the growth of trade in services, the greater incidence of non-tariff measures, higher and more volatile commodity prices, the rise of emerging economies, and evolving perceptions about the link between trade, jobs and the environment.

- Trade opening, especially in the context of non-tariff measures beyond WTO disciplines, is taking place outside of the WTO. A greater focus on regulatory convergence will therefore be required.

- Interdependence between trade in goods and trade in services is increasing. Frictions in natural resource markets expose some regulatory gaps, and the emergence of new players affects global trade governance in ways that need to be better understood.

- Addressing these challenges will involve reviewing and possibly expanding the WTO agenda. Traditional market access issues will not disappear but new issues, particularly with regard to non-tariff measures, are emerging. Internal governance matters as well as the role of the WTO in global governance may also need to be addressed. An important issue will be how to “multilateralize” the gains made in preferential trade agreements and how to secure regulatory convergence.

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