On 28 July 2017 the WTO issued the latest annual statistical report World Trade Statistical Review 2017. This publication examines trends in trade in goods and services and trade policy developments including restrictive trade practices.
World merchandise exports have risen by around 32% in value since 2006 to USD 16 trillion in 2016, and exports of commercial services have increased by around 64% in the same period, reaching USD 4.77 trillion in 2016. However trade growth in terms of volume of merchandise showed its lowest growth since the financial crisis, at 1.3% in 2016. This was half the growth rate of the previous year. This is due partly to low growth of world GDP at 2.3%, down from 2.7% in 2015. Growth in world trade is expected to rise slightly in 2017 to 2.4%.
In recent years the ratio of global trade growth to GDP growth has fallen to around 1:1 from an average of around 1.5:1 since 1946. In 2016 the ratio was 0.6:1, falling below 1 for the first time since 2001.
International trade is still concentrated within a few countries with the highest ten trading nations accounting for more than half the global trade in merchandise and commercial services. The share of developing countries in world merchandise trade is 41% and their share of trade in commercial services is 36%. Trade between developing countries is rising and accounted for more than half their total exports in 2015. However those countries classified as least developed countries (LDCs) still have a share of less than 1% in exports of merchandise and commercial services.
The increasing use of new technologies is expected to have a positive impact on digital trade in future with opportunities for entrepreneurs and small businesses. To analyze these trends and formulate good policy in the area improved statistics are necessary. The WTO and OECD have therefore put together an inter-agency task force to take the issue forward.
Trade policy trends
From mid-October 2016 to mid-May 2017 WTO members implemented 74 new trade restrictive measures, a decrease on the amount recorded in the previous annual report. Trade restrictive measures include new tariffs on import or exports; increases in existing tariffs; import bans or quantitative restrictions; more complex customs regulation or procedures; or restrictive changes to local content requirements. The measures could be temporary or permanent.
In the same period WTO members introduced 80 measures to facilitate trade. However the trade coverage of the import-facilitating measures is more than three times the amount in value of the estimated trade coverage of the import restrictive measures. Trade facilitating measures include the elimination or reduction of tariffs on imports or exports; simplified customs procedures; elimination of import or export taxes; or elimination of quantitative restrictions on imports or exports.
Trade facilitation agreement
The report notes that the WTO’s Trade Facilitation Agreement (TFA) entered into force in February 2017. The agreement aims to save trade costs for WTO members by simplifying and standardizing customs procedures and facilitating the flow of goods across borders.
Developing countries are permitted to set their own timetable for implementation according to their capacity. They can also obtain access to capacity-building resources to enable them to implement the agreement. The WTO has established a Trade Facilitation Agreement Facility to assist developing countries in assessing their needs and finding potential development partners. Developing countries are requested to set out the provisions of the TFA that they can implement immediately, the provisions that will require more time for implementation and those that may require capacity building support. The various commitments therefore provide a road map for the full implementation of the agreement by all WTO members.
The sixth aid-for-trade monitoring report has been published by the WTO and OECD under the title “Aid for Trade at a Glance: Promoting Trade Inclusiveness and Connectivity for Sustainable Development. The Aid for Trade initiative, launched in 2005, aims to help developing countries participate in global trade by assisting with the supply side and addressing trade-related infrastructure constraints. The report notes that more than USD 300 billion has been devoted to programs and projects since the initiative was launched.
The focus of the latest edition is on physical and digital connectivity. Trade connectivity is essential for inclusiveness, sustainable growth and reduction of poverty. Digital networks are essential to trade and are interlinked with the physical trade infrastructure. Without an affordable internet connection the market place of the world-wide web cannot be accessed. The report points out that around 3.9 billion people remain offline.
As a result of digitalization a larger number of low-value transactions and small shipments cross national borders, and goods are increasingly combined with services. Services therefore represent a growing share of exports of manufactured products. New technology lowers the cost of supplying cross-border services and facilitates connections between parts of the supply chain. This does not eliminate comparative advantage or other constrains from information symmetries and trade barriers; but many of the constraints of international trade are being overcome and new business models are being created.
The 2030 Agenda for Sustainable Development has set targets for universal, affordable access to the internet. Although mobile broadband networks are available to more than 50% of people in the less developed countries (LDCs) the devices and network connections are still expensive and coverage is limited. The high costs of digital connections can be seen as trade costs that exclude firms and consumers from the online market for goods and services.
Measures are required to improve the supply side of digital connectivity including ICT infrastructure and availability of network coverage; and the demand side such as affordability and internet usage. This involves mobilizing additional finance to develop infrastructure, ICT services markets and regulatory environments. Aid for Trade supports governments in their efforts to bridge the digital divide.
There is also a digital trade policy divide. Developing countries must consider the trade policy aspects of digitalization. Digital connectivity alone is not sufficient without additional policies to develop the potential of e-commerce, including technical and financial assistance to develop human, institutional and infrastructure capabilities.
Commerce is hindered by border clearance delays and inadequate physical infrastructure. Digitalization of customs services can make the customs and border agencies more efficient. The report emphasizes the need to streamline customs services for micro, small and medium enterprises (MSMEs). Many of these concerns will be addressed by the WTO Trade Facilitation Agreement.
The Trade Facilitation Agreement aims to simplify and harmonize international trade procedures, speeding up the movement and clearance of goods. Complete implementation of the agreement could lower trade costs by 16.5% for low income countries and 17.4% for lower middle income countries. The TFA covers a range of trade facilitation measures including customs cooperation, customs procedures, freedom of transit, formalities, appeals procedures and fees and charges. Countries self-assess and declare their ability to implement each measure.
Services trade is important in growing connectivity as services support trade in goods, supply chains and manufacturing activities. They are also involved in the infrastructure enabling e-commerce and online services. Governments need to help promote the development of e-commerce strategies supporting trade logistics, development of e-commerce skills, adequate legal frameworks, online payments and access to finance. These combined with an increase in connectivity can increase e-commerce possibilities, generating economic growth and employment.
E-commerce can raise productivity in developing countries across all economic sectors, including MSMEs and enterprises owned by women, by connecting to customers and suppliers worldwide. Governments need to promote internet access and training to ensure that existing inequalities of access do not increase. The private sector is also important in supporting MSMEs and individuals to become connected to the global economy.
An agreement in principle has been reached on a free trade deal between the European Union (EU) and Japan. The deal includes sizable tariff cuts, co-operation on standards and regulations and opening up of public procurement markets.
The EU and Japan together account for 19% of global gross domestic product and 38% of goods exports. Around 10% of Japanese exports go to the EU. This is more than double the proportion of EU goods exported to Japan.
The EU estimates the agreement will save it EUR 1 billion in customs duties each year and increase exports to Japan from more than EUR 80 billion to more than EUR 100 billion a year.
Tariff reduction and elimination
Japan’s main objective is to reduce or eliminate EU import duties on its automobile sector. This is very important because the EU is the world’s largest importer of road vehicles. The EU has agreed to gradually phase out all tariffs on cars imported from Japan, with some safeguards in the event of a sudden large rise in imports.
For the EU the most important goal was to reduce Japan’s tariffs on imports of European meat, wine, and dairy products. The EU agricultural sector will be subject to much lower tariffs on exports to Japan. Currently, Japan’s import duties on food are high, ranging from 15% on wine to 30-40% on cheese. After the agreement is effective some tariffs will fall to zero immediately and others will be phased out over 15 years. For some very sensitive products, the zero tariff will only apply up to a certain volume of imports.
Both sides will benefit from removing non-tariff barriers, such as incompatible product standards. The agreement includes provisions for greater harmonization of standards. The EU considers that this will help its manufacturers increase their exports to Japan.
Before the deal takes effect the EU and Japan must agree on the issue of investor protection. The EU does not want to use “investor state-dispute settlement” tribunals. These tribunals have been widely criticized by campaign groups as offering a way for multinationals to undermine environmental and labor standards. The alternative could be investment courts but Japan may object to this option.
According to the European Commission president, the deal could take effect in early 2019. This will however depend on the outcome of negotiations on the remaining details of the agreement. Some further time will be required to turn the agreement in principle into the final text of a free trade agreement.
On 30 June 2017 the WTO issued its seventeenth monitoring report on G20 trade measures. The report indicates that the number of trade restrictions in the G20 countries has slightly increased in comparison to previous years.
The report notes that 42 new trade-restrictive measures were implemented by G20 countries between mid-October 2016 and mid-May 2017. The measures included new or increased tariffs, customs regulations and restrictions on rules of origin. The G20 countries also applied 42 measures to facilitate trade during the same period. These measures included the elimination or reduction of tariffs and simplification of customs procedures.
The report notes that the estimated trade coverage of the measures to facilitate trade was US$163 billion and that this was significantly greater than the estimated trade coverage of the trade restrictive measures, estimated to be US$47 billion. The report notes that the expansion of the Information Technology Agreement (ITA) is contributing significantly to trade facilitation.
The most frequently applied measures was the initiation of trade remedy investigations. These measures cover anti-dumping actions, countervailing duty measures and safeguard actions to protect domestic industry. The report presents these measures as a separate category. Although they represented 50% of all trade measures taken in the period covered by the report they cover a relatively small amount of trade, US$25 billion for trade remedy initiations and US$6 billion for terminations of measures.
The report notes that the G20 leaders should emphasize their commitment to open and mutually beneficial trade as a driver of economic growth. The G20 countries should contribute to improving the global trading environment by implementing the WTO Trade Facilitation Agreement, in force since February 2017. The countries are also urged to work together to achieve a successful outcome to the 11th WTO Ministerial Conference to be held in December 2017.
On 29 June 2017 the WTO’s Director General spoke during an informal dialogue on Micro, Small and Medium Enterprises (MSMEs). These entities face greater barriers to cross-border trading and WTO members have put forward some ideas to deal with the obstacles. Helping MSMEs to participate in trade flows will be a topic for discussion at the Global Review of Aid for Trade in July 2017.
MSMEs are important to the global economy because they are responsible for most of the job creation worldwide, are major employers of women and young people and foster entrepreneurship and innovation. Measures to assist more MSMEs to join global trade flows will build a more inclusive trading system by helping more agricultural firms and people in LDCs to benefit from trade, contributing to the achievement of the Sustainable Development Goals.
MSMEs face greater trade barriers than larger entities as they often do not have sufficient resources, ability to absorb risk or the necessary expertise. MSMEs have difficulty accessing trade finance and globally 58% of trade finance requests from MSMEs are rejected compared to 10% from multinationals.
The costs of trade are also an obstacle for MSMEs. Fixed costs connected with trade can be difficult for MSMEs as they have to deal with standards, border procedures and other non-tariff barriers. It has been estimated that increases in regulatory burdens have twice as much impact on MSMEs as on larger entities. The WTO has also found that variable costs are an issue and tariffs are considered by MSMEs to be a major obstacle.
To help MSMEs organizations such as the WTO, UNDESA and ITC can help to disseminate information on regulations and standards in global markets. Last year the ePing notification alert system was launched to alert members about new measures and promote dialogue on addressing potential trade problems. These organizations could look at new ways to make available relevant data to their members.
The WTO is working with the IMF and regional development banks to help MSMEs access resources required. Trade finance is a very low risk form of finance and the default risk on short term trade credit is only 0.02%. The issue of trade finance is to be discussed at the Global Review of Aid for Trade later in 2017.
Local initiatives to support MSMEs could be shared with a wider audience to give an idea of the practical measures that work well and those that do not. Information sharing at a technical level could be constructive. This would also help the WTO to identify areas where it could be of help to MSMEs.
General measures to improve global trade
Measures to generally improve the trading system also help the firms facing the greatest barriers to participation in the system. So MSMEs are benefiting from the general work of the WTO including the Information Technology Agreement that facilitates access to new technologies. They also benefit from moves to strengthen capacity building to help people develop the skills and tools required to trade successfully.
The Kenya Revenue Authority has been issued a public notice on 26 January 2017 to inform all exporters, customs agents and the general public that the government prohibited the exportation of maize until further notice.
At the World Trade Symposium of 7 June 2016 on “Trade and Globalization in the Twenty First Century: The Path to Greater Inclusion” the Director-General of the World Trade Organization (WTO) spoke about current progress and remaining issues in global trade.
In the current economic climate international trade can be a driver for growth, development and job creation. Growth in trade has been hit hard as developed countries recover from the crisis and developing economies reach maturity. Global trade grew by around 2.8% in 2015 and is expected to remain about the same in 2016. This means that global trade is growing at around the same rate as GDP.
Some action can be taken to help the growth of global trade, such as countering restrictive trade measures. The WTO regularly monitors such restrictive trade measures. At the end of last year only 25% of the restrictive measures recorded since October 2008 had been eliminated, and the situation has not changed much since then, so around 75% of the restrictive measures remain in place.
The best safeguard against protectionism is a strong multilateral trading system. A number of liberalization measures have been introduced in the past few years including:
- The Trade Facilitation Agreement which could reduce average global trade costs by more than 14%;
- The agreement by WTO members to abolish export subsidies in agriculture which is the biggest reform to trade in agricultural goods in the past twenty years;
- The agreement by a group of WTO member countries to abolish tariffs on a number of new general information technology products which is the first tariff-cutting deal in the WTO for the last nineteen years. Trade in the IT products that are the subject of the agreement is worth USD 1.3 trillion dollars per year; and
- Talks are continuing with a view to concluding an Environmental Goods Agreement and further progress on this will be made during the current year.
More can be done to strengthen the global trading system. Global trade is still restricted by high tariffs, many of which are imposed on goods that are important to developing and least developed countries. Another area that could be improved is non-tariff measures. It is estimated that in 2010 the trade costs for developing countries were the equivalent of a 219% import tariff, and the Director-General considered that a cut of just 1% in trade costs would represent a 3% to 4% increase in trade growth. Global trade and investment growth is also hindered by restrictions on trade in services.
The growth in regional trading agreements is a challenge. Although this can support multilateral trade agreements it can also throw up issues such as trading rules in areas not covered by the WTO. Work must be done to ensure coherent rules in these areas so businesses are not weighed down by a patchwork of different rules that require increasing compliance costs.
The Director-General referred to some negative perceptions of global trade. Imports are often blamed for reducing employment whereas the real reason is often new technology and increased productivity. Another problem is that while the benefits from trade are evident across the whole economy there are specific groups that can be hard hit by increased competition and this impact must be mitigated by governments. Also international trade is seen as favorable for large enterprises but much more difficult for small and medium enterprises (SMEs). This issue needs to be dealt with so trading across borders is not seen as more costly for SMEs. Other issues that could be tackled in future by the WTO include fisheries subsidies, competition policy, investment facilitation, e-commerce and non-tariff barriers.