Bolstering trade depends on policy choices

World trade is changing, and so too the way policymakers approach it, rightly said Pascal Lamy. The former Chief, World Trade Organisation (WTO) opined that though  merchandise trade growth is expected to remain strong in 2018 and 2019 after posting its largest increase in six years in 2017, yet continued expansion depends on robust global economic growth and governments' pursuing appropriate monetary, fiscal and especially trade policies.

NOT THAT EASY GOING: The multilateral trade body - the World Trade Organisation - is very specific in saying that escalating trade tensions and tighter credit market conditions in important markets would moderate the growth of global merchandise trade to 3.7 per cent in 2019 from 3.9 per cent in 2018, Accordingly, trade volume growth should slow to 3.7 per cent in 2019 as global GDP growth dips to 2.9 per cent. The new forecast for 2018 is below the WTO's April 12 estimate of 4.4 per cent but falls within the 3.1-5.5 per cent growth range indicated at that time.

It may be noted that trade-related indicators have shown a loss of momentum, including global export orders and economic policy uncertainty. Region wise: developing and emerging economies could experience capital outflows and financial contagion as developed countries raise interest rates, with negative consequences for trade. North America had the fastest export growth and Asia had the strongest import growth in the first half of 2018 while resource-based economies still struggled.

Side by side, it has cautioned that while rising trade tensions pose the biggest risk to the forecast, monetary policy tightening and associated financial volatility could also destabilise trade and output.   Monetary policy tightening in developed economies has also contributed to volatility in exchange rates and may continue to do so in the coming months.

CHANGE IS THERE AND WILL CONTINUE: It has been crystal clear that the pattern of international trade in today's world has changed dramatically from the era of merchandise trade in the twentieth century to the era of services trade and digitalisation in the twenty-first century, in particular in terms of the ways trade goes across borders, which, in turn, has been bringing great challenges to traditional ideas, norms, and rules relating to international trade and investment.

The time is here when the developing world has been doing better than the historical trends. It has been the fact also that the environment has been turning to be tough and tougher! So, maintaining a share in global trade has become more challenging. Tariff and non-tariff barriers rule high, reinforced further by protectionism.

 SCENARIO AT A GLANCE:

l World merchandise trade volume is expected to grow 4.4 per cent in 2018, accompanied by GDP growth of 3.2 per cent at market exchange rates.

l Faster trade expansion is being driven by stronger economic growth across regions, led by increased investment and fiscal expansion.

l Trade growth in 2018 is likely to fall within a range from 3.1 per cent to 5.5 per cent, if current GDP forecasts come to pass, although a continued escalation of trade restrictive policies could lead to a significantly lower figure.

l Trade growth should moderate to 4.0 per cent in 2019 even as global GDP growth slows slightly to 3.1 per cent.

l The ratio of trade growth to GDP growth should remain at 1.4 per cent in 2018, down slightly from 1.5 in 2017.

l Risks are centred on trade and monetary policy, where missteps could undermine economic growth and confidence.

l An index of export orders has recently weakened, possibly signalling an effect of greater uncertainty brought about by heightened trade tensions.

[Source: WTO]

HUGE TASKS AHEAD: Let us have a look at what Pascal Lamy daid: 'the nature of trade and of obstacles to trade has changed dramatically over the past decades. We need a new trade narrative. We need to analyse these changes to identify what are the real obstacles to trade in today's globalised world and how best to respond to them. .... By trade opening, I do not mean deregulation; I mean opening trade within a framework of global rules. What the current crisis has demonstrated is that regulation is essential to harness globalisation. How can this be best achieved? Regional and bilateral trade agreements have a positive impact on trade opening as far as tariffs are concerned. But regulatory issues may not be necessarily best addressed through these agreements. The multiplication of regulatory frameworks that stems from regional and bilateral agreements may indeed create divergences with costly impact on business. Today, given the changing nature of obstacles to trade and global production chains, greater trade opening is best achieved through multilateral agreements'. He opined very correctly: in many regards, today non-tariff barriers matter more than tariffs. This is what we now have to focus on, and this is what this year's WTO World Trade Report will be about. This evolution has an impact on the way trade opening can be achieved.

Yes, the world economy is undergoing constant changes, with the top two major economies (US and China) leading and influencing the changing trend of global production, trade and investment. The policy uncertainty has become one of the major factors with great potential to destabilise the world economy as well as China-U.S. economic relations. Actually, a stable bilateral economic relationship is at stake. Obvious enough, better cooperation and institutional arrangement between them will, to a significant extent, help shape the prospects and framework of the global economic system.

Following Xue Lei (international investment policy expert), we can conclude: from the perspective of developing countries, the most urgent need is to fully grant quota-free, tariff-free treatment to the least-developed countries, so as to make good use of the advantages of trade in promoting industrialisation process in those countries that has been crucial in meeting the poverty-reduction goals. The developing countries also insist on maintaining the current practices of reciprocity-based single-undertaking in reaching new trade agreements at the WTO, which may give these countries more leverage in trade negotiations.

Let us look at how things get settled within a quicker period of time.

Dr B K Mukhopadhyay is a  Management Economist.

[email protected]