THE latest forecasts for global trade issued by the World Trade Organisation (WTO) show a situation which might be described as bland — the sluggish growth in the volume of world trade registered over the past two years is likely to continue through 2016. The figures may not be very exciting, but they do show developments in international trade which are worth highlighting, including for Pakistan.
First, the WTO is forecasting growth in world merchandise trade of 2.8pc this year, unchanged from 2015, and 3.6pc growth in 2017. Imports of developed countries, which boosted trade growth last year, should moderate in 2016 while demand for imported goods in developing Asian economies is expected to pick up.
The good news is trade is still registering positive growth, but we have now had four straight years of trade growth under 3pc compared to the 5pc annual average since 1990. And we must acknowledge that the risks to our forecast are mainly on the downside; a sharper than expected downturn in the Chinese economy, worsening financial market volatility, and exchange rate volatility hitting countries with large foreign debts could send the projected figures tumbling.
By cutting Pakistan’s trade costs, the TFA can help boost the country’s integration into global value chains.
Second, the Asian motor that drove global trade growth since the 2007-2008 financial crisis has been sputtering. Nearly three-quarters of the growth in global trade for 2013 came from Asia, but in 2015 this share slipped to less than a quarter, with the economic downturn in China the main culprit for the decline. Again, there is some good news in that we expect Asia to return to its role as the engine of trade growth with 3.4pc growth in exports in 2016. Pakistan should contribute its share, with the country’s economy expected to grow by 4.5pc this year and 4.8pc in 2017, according to the Asian Development Bank.
This moderate growth is somewhat unusual, but so were the high rates of global trade growth we witnessed before the 2007-2008 financial crisis. We should not expect a return to that type of growth in the near future, especially as the red-hot economies of China and other emerging economies begin to trend towards more normal rates of expansion.
The situation is not dire, but we shouldn’t be complacent. With governments running out of policy options on the fiscal and monetary side, WTO members should look more at the considerable arsenal of trade policy measures at their disposal to boost economic growth, job creation and development.
One immediate step WTO members can take is to roll back trade-restrictive measures put in place since the financial crisis. The WTO has been regularly monitoring the trade-restrictive measures that members put in place. Last November, we reported that the number of new restrictions imposed has stabilised, but the stockpile of measures continues to grow.
Another immediate step that we can take is to implement the new WTO Trade Facilitation Agreement. This agreement is significant: our economists estimate the TFA could cut Pakistan’s trade costs by around 13pc and boost global trade by up to $1 trillion a year. To put that into perspective, this is a bigger impact than eliminating every remaining tariff around the world.
By cutting Pakistan’s trade costs, the TFA can help boost the country’s integration into what we call global value chains. Increasingly, the production of goods is carried out in different stages across different countries. The typical smartphone, for example, may have parts sourced from more than half a dozen countries — getting these inputs in and out of markets quickly and cheaply has become an important driver of trade.
The WTO noted in its 2015 Trade Policy Review of Pakistan that the country has taken some cautious steps towards trade liberalisation but that overall tariff levels remain high, which can impede the integration of Pakistan into global value chains. Addressing these barriers would not only boost economic growth but also help the country diversify its traditional reliance on agricultural and textile and clothing exports.
Pakistan was an active participant in the TFA negotiations, and I was delighted to receive the country’s ratification of the agreement last October. We stand ready to assist Pakistan in its efforts towards implementation. I welcome the fact that Pakistan has already taken positive steps in this direction, such as establishing a National Trade and Transport Facilitation Committee.
The TFA is just one agreement though — WTO members delivered further agreements at the end of 2015. This included a deal to scrap farm export subsidies and eliminate tariffs on a wide range of high-tech products.
The former will help to level the playing field in agriculture to the benefit of farmers in Pakistan and other developing markets. The latter will ensure duty-free access to 95pc of world markets for covered products, including those exported from Pakistan.
These are some very important outcomes — but we want to keep delivering. WTO members are currently reflecting in Geneva on the future shape of global trade negotiations, and how to carry forward work on issues such as agriculture which are so important to Pakistan and other developing countries. I am sure that Pakistan will make its voice heard in this debate — and I look forward to discussing all of these issues when I visit Islamabad and Lahore this week.
The writer is the director general of the World Trade Organisation.
Published in Dawn, May 2nd, 2016