Trade war and increased tariff could hurt the growth of US$15.46trillion annual global trade: WTO
Global IT trade products are worth US$1.3 trillion
World merchandise exports, valued at US$15.46 trillion in 2016, is expected to grow this year as the global economy likely to record 3.9 percent growth in 2018, a senior officials of the World Trade Organisation, said.
“Economic data and forecasts from the IMF, OECD, World Bank and others have been revised steadily upwards over the last year, which would tend to indicate a sustained recovery of trade in 2018 following strong trade growth in 2017,” Yonov Frederick Agah, Deputy Director-General, World Trade Organisation (WTO), said in an interview on the eve of the 8thAnnual Investment Meeting (AIM) taking place at the Dubai World Trade Centre from April 9-11, 2018.
“However, trade frictions and geopolitical tensions have also risen sharply in recent months. Increased use of restrictive trade measures – and the retaliation that this would invite – could easily undermine a generally positive outlook for trade.
“Inward-looking policies, geopolitical tensions and political uncertainty were seen as the main downside risks.”
WTO will release its World Trade Report 2018 on Thursday, April 12, 2018, he said.
In an interview, Yonov Frederick Agah, Deputy Director-General, World Trade Organization (WTO), elaborated his thoughts on the latest developments with regards to the world trade flow.
Question: Could you kindly tell us about the role of the World Trade Organization (WTO) in the promotion of investments among member countries and in digital commerce?
Yonov Frederick Agha: In today's increasingly open, integrated and 'digitalised' global economy, the WTO is becoming more, not less, important. It provides the global rules for world trade, an essential mechanism for resolving trade conflicts, and key forum for negotiating new trade agreements. As the only global trade body, it provides the only forum where all countries — including the most powerful — can cooperate on the growing number of trade issues that impact them collectively.
While the role of regional trade agreements in opening markets and strengthening trade rules is important, there is a limit to what they can achieve because – by definition their membership is more restricted, and their rules diverge. Indeed, many of the key trade issues today — from investment, to services, to digital commerce — are inherently global in nature and can only be solved in the global WTO.
But while the WTO's approaches to investment and the digital economy need to be global, they also need to be flexible – reflecting the diversity and multi-polarity of today's globaleconomy. Besides trying to harvest more results in the traditional areas of its work, the WTO's recent Ministerial Conference in Buenos Aires also saw the launch of new discussions in other dynamic areas such as e-commerce, investment facilitation, support to small businesses and women's economic empowerment. All this is new - and needed.
Tell us about the trade flows between the member countries of the Organisation and how they are affected by the policies of the countries. What do you think of the economic changes that are taking place today? How do you see the global economic situation?
The WTO is about to release its annual trade statistics and trade forecast on 12 April 2018. The figures are under embargo until then so they cannot be shared with you. However, the WTO can comment on general economic trends and recent forecasts from other agencies. It can also discuss the short-term outlook for trade as signalled by the "World TradeOutlook Indicator", or WTOI, which is a kind of composite leading indicator of trade conditions.
To summarize, economic data and forecasts from the IMF, OECD, World Bank and others have been revised steadily upwards over the last year, which would tend to indicate a sustained recovery of trade in 2018 following strong trade growth in 2017. However, trade frictions and geopolitical tensions have also risen sharply in recent months. Increased use of restrictive trade measures – and the retaliation that this would invite – could easily undermine a generally positive outlook for trade.
The IMF's latest projections were issued in the World Economic Outlook Update in January, which had a forecast of 3.9 percent for world real GDP growth in 2018. This would be the strongest performance since 2011, reflecting increased global growth momentum and the expected impact of US tax policy changes. The pickup in economic activity and easier financial conditions could reinforce each other, producing faster economic growth in the short-run but a build-up of financial vulnerabilities over the medium term. Inward-looking policies, geopolitical tensions and political uncertainty were seen as the main downside risks. Policy recommendations included structural reforms to boost potential output and fiscal policies consistent with medium term economic stability.
More recently, the OECD's Interim Economic Outlook of 13 March also depicted a stronger world economy with 3.9 percent GDP growth in 2018 and 2019, fuelled by robust investment spending and associated rebounds in trade and employment. The report cautioned against political and trade tensions while highlighting financial sector vulnerabilities including interest rate normalisation and high debt and asset prices. For sustainable growth, the OECD recommended structural and fiscal policies aimed at improving inclusive growth.
The WTO's most recent World Trade Outlook Indicator (WTOI), issued on 12 February, pointed to continued solid trade volume growth in the first quarter of 2018. Component indices for container port throughput, air freight shipments, and new export orders from purchasing manager's indices were all above the baseline value of 100, indicating above trend growth. However, weaker results for automotive products, agricultural raw materials and electronics components trade might indicate a weakening of consumer and business sentiment.
To reiterate, the outlook for global trade and output based on economic fundamentals is positive for 2018 and beyond. However, continued recovery is predicated on stability of the current trading environment, which is tenuous and could easily be reversed by political tensions and trade frictions. Member countries should use the multi-lateral system to resolve their differences and prevent economic uncertainty from undermining growth.
Regarding the trade policies of WTO members, it should be noted first and foremost, that the WTO is a set of rules negotiated by member countries that provides a legal framework for international trade. Second, it is a negotiating forum where members work out mutually beneficial trade agreements. Finally, it is a forum for settling trade disputes. Trade disputes inevitably arise between countries, but settling them through a neutral, rules-based and transparent process keeps them from escalating.
WTO membership does not directly influence trade flows, but over time economic efficiency is improved by allowing countries to obtain goods and services from the most efficient suppliers. It also gives countries access to larger markets for their goods and services. The fact that the WTO provides a transparent and predictable environment for international trade reduces uncertainty and can promote stronger trade and economic growth, which over the long run this means higher living standards.
Tell us about the most important international trade agreements that the organization has contributed to the completion of its deals?
The WTO is the most important — and far-reaching—system of global economic cooperation in history. Launched as a limited tariff agreement among 23 members — the 1947 GATT — it has grown over nine trade ‘rounds’ into a multi-issue economic agreement among 164 members — the modern WTO.
Moreover, as has been demonstrated in recent years, the WTO is not standing still:
In 2013 in Bali, it delivered the first multilateral deal in the history of the organisation – the Trade Facilitation Agreement. This agreement has huge economic significance, potentially cutting trade costs globally by an average of 14.3 per cent. This is a bigger impact than the elimination of all remaining tariffs in the world today.
In 2015 in Nairobi, members abolished agricultural export subsidies.
In addition to that, a group of members agreed on the expansion of the WTO's Information Technology Agreement. This deal eliminates tariffs on a range of new generation IT products, trade in which is worth around $1.3 trillion per year.