The FINANCIAL — International trade made a major contribution to economic growth over the past half century, but it was hit hard by the recent recession and has still not recovered its former pace of growth. From the mid-1990s to mid-2000s, annual growth of world merchandise trade averaged 6 per cent or more; in 2013, exports expanded by just 2.5 per cent.
Yet, despite the slowdown, merchandise exports reached a new high in 2013 of USD18.8 trillion. Clearly trade remains an important feature of the global economy. Despite gloom in some quarters, there has been considerable progress in opening many markets.
Developed nations have led the way, but some emerging markets are now among the group of top performers for certain aspects of market openness. These include some countries that joined the Organisation for Economic Co-operation and Development (OECD) or the World Trade Organization (WTO) in the past two decades and that are pursuing sustained trade-oriented reforms: Chile, the Czech Republic, Israel, Korea, Poland and the United Arab Emirates.
Recent WTO members Saudi Arabia and Vietnam are also making notable progress in several aspects of market opening. There are a number of other developing countries performing very well in specific areas of trade liberalisation.
But despite such progress, an air of pessimism hangs over trade, with demand weak in key OECD economies and growth slowing in some large emerging markets. There is frustration that multilateral trade negotiations have made slow progress, despite more than a decade of efforts under the Doha Round at the WTO.
In the years since the Second World War, the trade negotiations and unilateral reforms have reduced traditional trade barriers such as tariffs and quotas. Now other barriers at the borders and beyond are raising concerns. Even if tariffs are low, for example, importing a car whose tail lights do not conform to national standards may still be difficult. Regulations focused on the domestic economy, such as the handling of local food products, can confound foreign businesses entering the market.
Yet, there are reasons for optimism. There is significant scope for further trade liberalisation to unlock economic opportunities. Prospects appear good for implementation of the WTO’s Trade Facilitation Agreement and expansion of product coverage for duty-free treatment under the Information Technology Agreement. Leading WTO members continue their quest for a new Trade In Services Agreement, while regional negotiations – such as those for the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership – appear to be advancing in ways that could address difficult behind-the-border impediments to trade.
In striving for such deep liberalisation it is important to take into account concerns about potentially painful labour market adjustment, although these can be addressed using appropriate policy responses where necessary. Similarly, complex regulatory issues will need to be tackled in a constructive manner.
Governments have accumulated substantial experience in such matters. Despite the challenges, in many quarters there is a broad understanding of the importance of openness: during the Great Recession, efforts by the G20, OECD, WTO and others largely contained protectionist impulses.
While there remain significant risks to openness, including geopolitical confrontation and inward-oriented domestic political agendas, there is a growing awareness among policymakers that trade is part of the solution rather than a problem.
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