Trade makes global economy more inclusive

International trade has played a crucial role in narrowing the income gap between economies since the formal inception of the World Trade Organization (WTO) three decades ago on January 1, 1995.

Again during two and half decades after the establishment of WTO, between 1995 and 2020, trade cost reductions led to a 20 -35-percent rapid income convergence of low- and middle-income economies with high-income economies.

The 2024 edition of the WTO's World Trade Report presented these findings. The theme of the report is 'Trade and inclusiveness: How to make trade work for all.'

Examining how international trade has contributed to making the global economy more inclusive, the report showcased data establishing a strong link between trade participation and the narrowing of income disparities among economies.

"From 1996 to 2021, a high trade share in GDP is significantly correlated to faster growth in low- and middle-income economies, converging to the level of GDP per capita in high-income economies," said the report.

The report was unveiled Monday afternoon at the WTO's secretariat in Geneva. A press conference was arranged in hybrid format where some journalists in Geneva joined in-person and many others participated virtually.

WTO Chief Economist Ralph Ossa, report coordinators Roberta Piermartini and José-Antonio Monteiro, and WTO Spokesperson Ismaila Dieng were present at the press conference to share the highlights of the report. They also replied to questions raised by the journalists.

According to the report, membership in the WTO and its predecessor the General Agreement on Tariffs and Trade (GATT) has boosted trade between members by an average of 140 per cent, while economies that undergo rigorous WTO accession negotiations are shown to grow 1.5 percentage points faster during their accession period.

Contrary to common belief, the report identified weak correlation between trade openness and within-country income inequality, based on a comparison of the 2021 Gini inequality index and trade openness index of 157 economies.

"While income inequality remains high it is not systematically linked to trade and import competition," it added.

The flagship publication of the WTO also analyzed trends in the distribution of the gains of trade among people within economies, and emphasizes the need for a comprehensive strategy that integrates open trade with supportive domestic policies.

"Perhaps the biggest takeaway from the report is its reaffirmation of trade's transformative role in reducing poverty and creating shared prosperity - contrary to the currently fashionable notion that trade, and institutions like the WTO, have not been good for poverty or for poor countries, and are creating a more unequal world," WTO Director-General Ngozi Okonjo-Iweala commented in her foreword to the report.

"But the second biggest takeaway is that there is much more we can do to make trade and the WTO work better for economies and people left behind during the past 30 years of globalisation," she added.

The report also highlighted challenges, noting that many economies with weak trade participation and high commodity dependence have been left behind.

Between 1996 and 2021, low- and middle-income economies that grew slower than the average high-income economy in income-per-capita terms represented 13 per cent of the global population and were mainly in Africa, Latin America and the Middle East. Low- and middle-income economies that have lagged behind generally tend to engage less in international trade, receive less foreign direct investment, rely more on commodities, export less complex products, and trade with fewer partners.

"Less trade will not promote inclusiveness, nor will trade alone," WTO Chief Economist Ralph Ossa said. "True inclusiveness demands a comprehensive strategy - one that integrates open trade with supportive domestic policies and robust international cooperation."

The World Trade Report was first published in 2003. The central focus of the report was development. And last year's report examined how re-globalisation - or increased international cooperation - could address the three major challenges facing today's global economy: national and economic security, poverty alleviation and environmental sustainability. Interestingly, the main focus of last year's trade report became the theme of the current year's annual public forum.

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