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THE CHANGING PATTERNS OF WORLD TRADE

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GENEVA, Oct 13 2010 (IPS) - The global trade landscape has changed profoundly in the past decade ­more profoundly, I suspect, than we fully understand. These changes are being driven partly by market opening, but mainly by transport, communications and information technologies. It now costs less to ship a container from Marseille to Shanghai ­half way around the world­ than to move it from Marseille to Avignon ­100 kilometres away. Multinationals routinely organize their activity around three “shifts” corresponding to the three main times zones ­Europe, North America and Asia­ and deliver on-line services, data inputting, software writing, help-lines ­from practically anywhere in the world.

One result of these changes is the continuing globalization of trade. Despite the recent crisis, world exports were 30 percent higher in 2009 than in 2000 and 150 percent higher than in 1990. Not all sectors are expanding at the same pace: manufactured exports are surging; raw material exports are growing steadily; and agriculture exports are largely static. But overall the trend is towards accelerating growth. And with the exception of East Asia, trade between regions is growing faster than trade within regions. Never before has the world economy been as inter-linked by trade as it is today.

Another result is the rapid shift in economic power East and South, as developing countries harness globalization to “catch-up” to the industrialized West. Developing countries’ share of world trade has grown from a third to over half in just fifteen years ­and China has just passed Japan as the world’s second biggest national economy, and Germany as the world’s top exporter. In 1990, less than a third of developing-country trade was with other developing countries; today over half of their trade is South-South. Not all developing countries are sharing in this growth, and for too many Raul Prebisch’s concerns about dependency and an uneven trade playing field remain true. But for export powerhouses like China, India, Brazil and others ­growing at historically unprecedented rates­ the Argentine economist Prebisch (1901-1986) is being turned on his head.

A third result is the spread of globally-integrated production chains ­in effect, global factories­ as companies locate various stages of the production process in the most cost-efficient markets. In this process, expanding trade links with emerging economies are mirrored by expanding foreign direct investment links ­as trade growth fuels investment and investment growth fuels trade. We still think in terms of Adam Smith’s world of trade between nations, but in reality most trade now takes place within globe-spanning multinational companies and their suppliers. It is not competition between China and the US that is relevant, so much as competition between Nokia’s and Samsung’s value chains. Instead of “Made in China” on the back of an iPhone, the label should read “Made in the World”, reflecting Japanese microchips, US design, Korean flat-screens and Chinese assembly.

These new global realities also force us to re-examine how we analyze and measure the whole concept of “international trade”. With so much trade now involving foreign companies operating within national jurisdictions ­and with so many components now criss-crossing the same border multiple times­ we need a new approach to trade statistics which measures the value-added at each stage in the production chain, and not just the last place from which a product was shipped.

Here is the paradox: Open trade is more central than ever to the world economy ­and a rule-based multilateral trade system has never been more critical to global prosperity and peace. Yet this system is struggling to cope with the fast-globalizing world it has helped to create.

This is not easy. The trading system has become more complex to manage as it has become more important. The dramatic reduction in border barriers has exposed deeper structural differences between economies ­in standards, regulations or legal systems­ that are generating new “systems frictions” and, because they are more tied up with values-based domestic objectives, are proving harder to resolve.

Because trade has become so important to development strategies, development issues have become increasingly important for the system ­indeed, development is centre stage in the current Doha trade negotiations. And overall the system’s rules have had to become more technical, more intrusive and more binding in order to remain relevant to economies that are still diverse, but far more interdependent.

As the system becomes more important, it also exerts a huge gravitational pull on countries to join and participate. The World Trade Organisation (WTO) has expanded to 153 Members ­up from just 23 in 1947­ and this number could easily grow to 180 within a decade. The US, the EU and Japan remain key players but they are no longer dominant. Fast-emerging powers, like China, India and Brazil, play a role that was unimaginable even twenty years ago. As recently as 1997 some four-fifths of WTO disputes were initiated by industrialized countries; this year almost two-thirds were initiated by developing countries. But as the number of players grows and their participation increases, cooperation becomes more difficult ­especially when interests diverge. (END/COPYRIGHT IPS)

(*) Pascal Lamy, Director-General of the World Trade Organisation (WTO).

 
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