A Healthy Trading System Requires Progress and Engagement at All Levels

By Roberto Azevêdo Reprint | | Print |

Roberto Azevêdo is the Director General of the World Trade Organization (WTO)

GENEVA, Jun 10 2016 (IPS) - This is a challenging time for global trade. According to the current World Trade Organization (WTO) 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 (GDP) 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.

Roberto Azevêdo

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.

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.

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 dollars 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 World Trade Organization. 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 (TPP) 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.

To take the example of the TPP, many of the 12 partners involved already have existing bilateral agreements with each other. The added advantage of this broader agreement is the potentially enormous market it creates. Instead of dealing with a number of different sets of rules or standards, the TPP could help to homogenize rules between all the parties.

Like several other agreements today, the TPP is an example of deep integration initiative through regional trade agreements. While earlier RTAs concentrated on only liberalizing tariffs, more recent RTAs have gone further.

Empirical evidence suggests that RTAs with deeper integration between signatories provide greater potential for the development of production chains which span national borders. WTO members in the Asia-Pacific region in particular have greatly benefited from these global value chains.

As production networks expand and regional and global value chains become more important, it is critical to minimise 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.

The silk-road economic belt, for instance, is rebuilding traditional links by concentrating on issues of connectivity such as improved infrastructure including port facilities, roads, and rail links. By improving these infrastructural networks connecting Asia and Europe, it is likely to improve trade by facilitating upgraded trade routes with landlocked areas of Central Asia.

These are all important steps that need to be taken to free up international trade and facilitate greater integration in value chains.

But how does all of this regional activity fit within the global framework of the World Trade Organization?

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.

Indeed, our analysis of regional agreements have shown that a large number of them fall within the guidelines set by the WTO with no obvious conflicts between overlapping agreements.

Perhaps a bigger consideration is where such initiatives touch on areas that are not currently covered by the WTO, whereby different RTAs deal with the same issues in different ways. This is not to suggest that regional agreements should not venture into these areas. But I think conversations in the WTO could help us establish whether a multilateral approach is feasible or desirable. Through discussions with the WTO, we’re likely to have a much more balanced, and inclusive framework.

A healthy trading system requires progress and engagement at all levels. And we have to acknowledge that one reason for the proliferation of regional agreements over recent years was a lack of progress in striking trade agreements globally through the WTO.

I’m pleased to say that we are now changing this situation. The WTO has actually delivered an impressive amount over the last couple of years.

But it’s also important to note that a healthy trading system isn’t just about negotiating trade agreements, the WTO’s work extends far beyond negotiations. We also monitor trade policies, build trading capacity in developing and struggling countries, and we have built one of the most effective dispute settlement systems in international law.

Indeed, although some RTAs have provisions on disputes, most of the dispute settlement mechanisms provided are rarely used. Meanwhile the level of activity in the WTO’s dispute settlement system is rising very rapidly. We have dealt with over 500 disputes in the WTO’s 21 year history. And of course most of the disputes brought to the WTO involve parties who are also themselves part of an RTA.