Increased Trade Cooperation Would Build Economic Resilience, WTO Says
More multilateral and regional trade cooperation would lead to greater economic resilience, the World Trade Organization (WTO) says in the World Trade Report 2021, its annual publication exploring trends in trade, trade policy issues, and the multilateral trading system.
The report examines why the interconnected global trading system is both more vulnerable and more resilient to crises, how it can help countries cope with shocks such as natural and human-made disasters, and what can be done to make the system better prepared and more resilient in the future.
Policies designed to boost economic resilience by unwinding trade integration—for instance, by re-shoring production and promoting self-sufficiency—can often have the opposite effect, the report finds. Such policies tend to make domestic economies less efficient in the long run by driving up prices of goods and services and curbing access to products, components, and technologies, says the report, which calls for more regional and multilateral cooperation to strengthen economic resilience.
Trade measures related to the COVID-19 pandemic underscore that “enhancing transparency and predictability is important to provide policy-makers and businesses with the information they need to make informed decisions,” WTO Director-General Ngozi Okonjo-Iweala says in her foreword to the report. “Reinvigorated international cooperation, not a retreat into isolationism, is the more promising path to resilience.”
The pandemic has been a “massive stress test of the world trading system,” delivering unprecedented shocks to global supply chains and heightening trade tensions among countries, the report says. The value of global trade in goods and services dropped 9.6% last year, while GDP slipped 3.3% in the most severe recession since World War II. The WTO predicts that global economic output will grow 5.3% this year, paced by an expected 10.8% rise in merchandise trade. The WTO’s Goods Trade Barometer, issued on November 15, says global merchandise trade is slowing, with production and supply disruptions in critical sectors dampening growth as well as cooling import demand.
Many Challenges Ahead
The report warns that the challenges ahead are “many and varied,” including climate change, which is driving increases in extreme weather events such as droughts, cyclones, and floods; human encroachment on animal habitats, which can increase the risks of spreading zoonotic diseases and sparking new pandemics; and a growing number of cyber-attacks and data fraud.
“Rising inequality, increasing economic fragility, and growing political uncertainty and geopolitical tensions are augmenting the risk of conflicts and violence,” the report says. “While there is a tendency to look at these risks individually, they can interact with each other and create cascading risks and shocks to the environment, economy, and society.”
Although trade can increase countries’ vulnerabilities and exposure to hazards—and accelerate the transmission of those hazards through economic, financial, transport, and digital linkages—it can also help countries generate the resources they need to prevent risks and prepare for, withstand, and recover from shocks.
“More trade cooperation at the multilateral or regional level, backed by strong international trade rules, can support the various domestic strategies deployed to avoid and mitigate risks and to prepare for, manage, and recover from shocks,” the report says.
Cooperation Is Key
The report also urges WTO members to work together to create more open markets and more inclusive, stable, and predictable trade that promotes the diversification of goods, suppliers, and markets. Further enhancing WTO transparency mechanisms—especially monitoring and notification requirements—would improve decision-making processes for both companies and governments, the report says.
“Clarifying the appropriate use of export restrictions on critical materials or intermediary products during crises would reduce policy uncertainty and risks in global value chains,” it says. “So would greater coordination of public procurement policies for critical goods and services during crises. Finally, advancing work on electronic commerce, micro, small, and medium-sized enterprises, and women’s economic empowerment would create new opportunities to make trade more inclusive and diversified, and thus more resilient.”
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