Global trade is fragmenting. The WTO must make a stronger case that can benefit us all

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Nicolai Ruge, Lead, Geopolitical Agenda and Trade Investment Platform, World Economic Forum, Danny Quah, Dean and Li Ka Shing Professor in Economics, Lee Kuan Yew School of Public Policy, National University of Singapore

• The WTO’s 13th Ministerial Conference is meeting at a time when geopolitical rivalry and protectionism are threatening the gains of globalization.
• Trade leaders must address the underlying issues: that free trade is no longer a geopolitical priority, and unevenly distributed benefits.
• Multilateral commitments on sustainable trade, and more inclusive trade mechanisms are needed.

Trade ministers from around the world are convening at the end of February in Abu Dhabi for the 13^th Ministerial Conference of the World Trade Organization. The event is a biennial opportunity for the WTO’s 164 members to meet at the highest level to review the functioning of the multilateral trading system and decide on its future.

The Ministerial Conference comes at a moment when the global economy is in a fragile state, with the World Bank projecting a decade of historically low growth ahead of just 2% annually. Trade – which has long been a driver of growth and poverty eradication, having helped 1 billion people lift themselves out of destitution in recent decades – is facing strong headwinds as protectionist forces mount. With leaders in many countries questioning the value of participating in a globalized world economy, the growth of geopolitical-driven protectionism threatens to limit the gains of globalization.

Against this backdrop, it is not an overstatement to say the conference in Abu Dhabi will be a critical moment in determining the future of global trade. As countries re-shore and friend-shore their value chains because of legitimate national security concerns, it is essential for ministers to reshape the current global trade system to prevent these trends from resulting in severe fragmentation, which could cost the global economy as much as 7% of GDP, according to the IMF.

WTO Director-General Ngozi Okonjo-Iweala has been acutely aware of the importance of the moment and has appealed for the need to “be ready to roll up our sleeves and work in Abu Dhabi”. But what would this work need to look like to make a real difference?

On the agenda will be efforts to advance international trade and reform the WTO itself, such as eliminating subsidies that encourage overfishing, extending the moratorium on duties on cross-border e-commerce, and restoring the system for settling trade disputes.

Yet, as important as these issues are, addressing them individually – with success uncertain, given the need for consensus to forge an agreement – may have at best a marginal impact on global trade. The necessary decision to admit two new members, Timor Leste and Comoros, into the WTO also cannot be considered significant progress if important topics are yet again kicked down the road.

Leaders in Abu Dhabi will need to be ambitious and focus on solving the underlying challenges ailing the trade system. They will need to address two factors that have enabled deglobalization to take hold despite the overall benefits trade has delivered over the past three decades: First, that trade is seen as being misaligned with global priorities; and second, that gains from trade have not been equitably distributed within and between countries.

Strengthening the trade system should first and foremost mean expanding the trade agenda beyond delivering efficiencies. Instead, trade needs to advance climate action and social inclusion through multilateral commitments against a “race to the bottom” on environment, labour and consumer standards.

Participating in global value chains can help the diffusion of climate-friendly technologies, such as solar panels or drought-resistant seeds. The broader the benefits delivered by trade, the more firmly it will be aligned with global priorities such as the Sustainable Development Goals. This, in turn, will enable trade to engender more trust of governments and citizens as they see the real value of it. Trade can thus be “fenced off” from geopolitical rivalry rather than disrupted for near-term political wins.

Here, inspiration can be taken from the African Continental Free Trade Area Agreement (ACFTA), which aims to create a single market for goods and services on the continent and facilitate the free movement of people.

Its Protocol on Investment is designed to support the continent’s green transition by promoting investment in green sectors, encouraging incentives for low-carbon investments, and developing green investment standards.

Secondly, more inclusive trade mechanisms must be developed. In particular, least-developed countries with structural constraints such as fragile institutions, weak markets and a limited knowledge base, face difficulties taking full advantage of the opportunities offered by globalization.

Between 2011 and 2020, exports of goods and services from least-developed countries contracted, and their share in global exports stagnated. What little economic growth has taken place has in most cases failed to trickle down to the poor.

More public-private consultations centred on the Global South are needed to ensure that multilateral trade policies prioritize the sustainable development of countries with the least economic power.

Trade-restrictive measures based on legitimate national security concerns is likely to remain a feature of global trade. To improve transparency, certainty and mutual trust, such measures must be ring-fenced, meaning focused, proportionate and time-bound.

DISCOVER

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The aspiration of an expanded and rebalanced global trade agenda is not something that can be achieved easily in times when trust is being eroded by rising geopolitical rivalry. But if ministers leave Abu Dhabi with little more than symbolic achievements, an opportunity will have been lost to strengthen a system of economic interdependence that has delivered immense, albeit imperfect, benefits. The alternative – a more fragmented, protectionist global economy – will make everyone worse off and will be a missed opportunity to strengthen collective action on the very environmental, economic and societal issues most countries care about.