EDITORIAL: The World Trade Organisation’s (WTO’s) analysis of its 30-year record of enabling and facilitating international trade makes interesting points about the benefits and limitations of the spike in global commerce over the last few decades.
While admitting that the advantages are, indeed, unfairly spread across rich and poor countries, and between what it refers to as “low- and middle-income economies”, there can be no denying that its efforts have led to faster income convergence – about 20-35 percent – of the latter with high-income economies.
The “biggest takeaway” from the analysis, it says, is its reaffirmation of “trade’s transformative role in reducing poverty and creating shared prosperity”, contrary to the notion – mainly championed by anti-globalisation lobbies – that institutions like WTO do nothing to alleviate poverty “and are creating an unequal world”.
It turns out that membership in the WTO, and its predecessor GATT (General Agreement on Trade and Tariffs), has increased trade between members by an average of 140 percent – a phenomenal number indeed. Income inequality still remains high in the global south, no doubt, but it is not systematically linked to trade and import competition. Rather, there is enough data to prove that most countries were much worse off with less trade.
The gist of the argument, summed up by WTO’s chief economist, is that “less trade will not promote inclusiveness, nor will trade alone”. That is why the “second biggest takeaway” is that a lot more can and should be done to make trade work better for countries and people that have been left behind in the last 30 years.
Trade must be complemented by “supportive domestic policies and robust international cooperation”. There is a lesson here for countries like Pakistan, which haven’t yet learned to realise their true trade potential or harness its benefits.
WTO recommends policies like vocational training, unemployment benefits, education for a more skilled and mobile workforce, competition policy to ensure consumers benefit from lower prices, reliable infrastructure, and well-functioning financial markets; all of which are glaringly absent or in very weak stages here and in similar countries and economies.
The Organisation needs to take its share of responsibility moving forward, of course, and it seems to realise that reducing trading costs, bridging the digital divide, and updating the WTO rulebook to reflect growing importance of trade in services, digital, and green sectors is going to be essential.
There is no denying that the world needs more, not less, trade, but in a way that the benefits are more evenly spread; especially in lower-income groups in low-income countries. There’s no better example than South Asia, where political imperatives of the leading economy have deliberately created an atmosphere that discourages all sorts of interaction, including commerce.
More trade would bring more foreign exchange to the region, even if the initial benefits are lopsided. In fact, it would push countries to develop internal frameworks that will enable a more equitable distribution of the gains. Countries that tapped into trade in the global information technology business in the last years of the previous century were able to erect a workforce able to cater to its demands.
India, for example, earned $194 billion from IT industry exports in financial year 2023, almost doubling its IT export earnings of $108 billion in 2016. This breakneck growth would not have been possible without foresight, which enabled the country to build the infrastructure and workforce that fed into this industry.
WTO’s report has come at an appropriate time. Income convergence progressed for three decades, but it slowed after the great global financial crash of 2007-08 and even reversed during the Covid pandemic; which, among other things, also exposed the vulnerabilities of modern supply chains and hence the need for countries to work more closely together.
Trade alone will not bridge the gap between economies, but it will go a long way and also stimulate domestic sectors in bad need of a shot in the arm.
Copyright Business Recorder, 2024