Development and building trade capacity
Trends in international trade
A comprehensive and fruitful analysis of the shaping factors of international trade and their implications for trade policy cannot be performed without having a clear idea of the evolution of trade patterns over time. This part of the Report analyses past present and future trends in international trade and economic activity. It begins with a historical analysis of trade developments from pre-industrial times to the present focusing on the key role that technology and institutions have played in the past. It then identifies and explains important trends in international trade that have emerged over the last 30 years. In doing so the section describes who the main players are in international trade (in terms of countries or companies) what countries trade and with whom and how the nature of trade has changed over time. Finally it provides some illustrative simulations of possible future trade scenarios.
Executive summary
The World Trade Report 2013 examines likely trends in world trade and how current and future economic social and political factors might weigh on these trends. Relationships are not uni-directional with trade being both the cause and effect of certain developments.
Introduction
Long-term forecasts are chronically difficult. It is unlikely that “revolutionary” events such as the explosion of communication and interactive facilities that shape our current way of life from social networking to international offshoring could have been predicted 20 years ago with any degree of precision. Nevertheless even though attempts to predict the future may to a large extent rely on extrapolations of current trends these efforts may help to take stock of important developments and identify challenges arising from changes that we are likely to face.
Foreword by the WTO Director-General
This year’s World Trade Report looks at how trade and other forces of change are affecting our world. It combines contemporary analysis with conjecture about the future. The approach is eclectic reflecting many different forces at work. The intermingling of these drivers of change is multidirectional and complex and the pace of change is rapid.
Trade openness and the broader socio-economic context
Section C showed how fundamental economic factors – demography investment technology natural resources transportation and institutions – can affect the future of trade. But trade takes place within a broader socio-economic context. This context matters for trade and trade policy. Historically social and macroeconomic concerns have repeatedly influenced decisions in trade policy matters. Section B of this report provided examples of such situations. Both themes are currently high on the political agenda and will undoubtedly affect policy-makers’ views and positions in the area of trade reform in the future. A third factor relates to environmental concerns an issue that has rapidly been gaining prominence in the national regional and global policy debate. It has also been repeatedly linked to trade notably in the context of a number of high-profile WTO disputes in the context of regional trade agreements and as an element of the on-going Doha Development Agenda.
Conclusions
This report has examined the forces that will shape the future of world trade. These forces are complex and numerous. They interact with trade itself and with each other as well as being influenced by government policy. One thing seems clear: the landscape and nature of world trade are changing fast. As trade evolves new policy challenges will arise. If properly managed international trade will further increase prosperity around the globe. What are the main issues therefore that policy-makers need to take into account?
Trade developments in 2012 and early 2013
World trade growth fell to 2.0 per cent in 2012 from 5.2 per cent in 2011 and remained sluggish in the opening months of 2013 as the economic slowdown in Europe suppressed global import demand. The abrupt deceleration of trade in 2012 was mainly attributable to slow growth in developed economies and recurring bouts of uncertainty over the future of the euro. Flagging output and high unemployment in developed countries reduced imports and fed through to a lower pace of export growth in both developed and developing economies. More positive economic developments in the United States in the early months of 2013 were offset by lingering weakness in the European Union as peripheral euro area economies continued to struggle and even core euro area economies increasingly felt the impact of the downturn in the region.
World Trade Report 2013
The world is changing with extraordinary rapidity driven by many influences including shifts in production and consumption patterns continuing technological innovation new ways of doing business and of course policy. The World Trade Report 2013 focuses on how trade is both a cause and an effect of change and looks into the factors shaping the future of world trade. One of the most significant drivers of change is technology. Not only have revolutions in transport and communications transformed our world but new developments such as 3D printing and the continuing spread of information technology will continue to do so. Trade and foreign direct investment together with a greater geographical spread of income growth and opportunity will integrate a growing number of countries into more extensive international exchange. Higher incomes and larger populations will put new strains on both renewable and non-renewable resources calling for careful resource management. Environmental issues will also call for increasing attention.
Prospects for multilateral trade cooperation
This section explores the relevance of current trade rules – as well as the need for new approaches to trade cooperation – in light of the forces that are currently re-shaping international trade. It suggests that the multilateral trading system will need to adjust to developments in trade and in the trading environment – as it has done repeatedly in the past – and reviews proposals for updating the WTO’s agenda and governance. The section starts with a short overview of key trade developments within the broader socio-economic context – especially the rise of global supply chains the general shift of trade power away from the West and towards Asia and other emerging economies as well as the changing nature composition and direction of trade. It then highlights some of the main challenges facing the WTO and how they could be addressed.
Competition Policy and Poverty Reduction
This paper examines the role of competition law and policy as tools for poverty reduction and development. The authors put forward five related principles building upon the important work on related issues that has been done by the OECD the International Competition Network (ICN) UNCTAD and civil society organizations such as CUTS in recent years in addition to the earlier work done on these topics in the WTO Working Group on the Interaction between Trade and Competition Policy when that body was active from 1997 through 2003. Together these principles comprise the "holistic approach" to competition law and policy which is referenced in the title of the paper: First the focus of policy makers in using competition policy as tool for poverty reduction should be on approaches that are relatively easy to implement but have a trackrecord of being effective and economically sound. Second for competition policy reforms and legislation to be successful public acceptance and support is critical and must be an essential focus of related initiatives. Third to serve as an effective tool of poverty reduction competition policy needs to address the needs of the citizens of poorer societies in their capacities as producers (and therefore as users of extensive input goods and services including public infrastructure) in addition to their capacities as final consumers/households. Fourth it is posited that "competition policy" is more than just "what competition agencies do" and includes the full spectrum of measures that governments employ to enhance competition and improve the performance of markets. Fifth in order to address the challenges posed by the changing landscape of competition policy worldwide new forms of international co-operation may need to be considered. The paper then develops the application of these principles with respect to five specific areas in which competition policy can contribute to poverty reduction namely: (i) the reform of public and business infrastructure sectors particularly in the context of developing and transition economies; (ii) the complementary roles of competition law enforcement and market liberalization in public procurement markets; (iii) various related dimensions of competition policy as they relate to public health objectives; (iv) the addressing of possible monopsonistic practices in international supply chains that may affect the ability of developing country producers to reap gains from participation in international markets; and (v) measures to address the enduring problem of international cartels which despite an impressive record of prosecutions by developed jurisdiction competition agencies over the past decade continue to impose substantial costs on developing economies. The paper concludes with some observations regarding the future of international cooperation in the competition policy sphere.
Economic resilience: Dynamics of informality
Informality is associated with increased vulnerability of countries to economic shocks. At the same time informality raises the likelihood of being affected by (external) shocks. The combination of these two tendencies can create a vicious circle weakening the long-term performance of a country lowering the potential benefi ts it can derive from trade and reducing economic well-being. This chapter discusses how informal employment evolves over the cycle – differentiating among different segments of informal labour markets – and the consequences for economic resilience to shocks. It presents evidence of the extent to which informal economies increase volatility in growth performance and the frequency of extreme economic events. Moreover the chapter discusses the particular interaction between international capital fl ows and labour market informality in worsening a country’s vulnerability to shocks. It emphasizes the potentially adverse effects of offi cial development aid and international investment by multinationals within global production networks.
Openness to trade and informality
Globalization and the opening of markets in developing economies to trade is believed to have affected informal employment in these countries. This chapter summarizes the theoretical arguments for such a link and presents the relevant empirical evidence. In particular it asks the questions: What roles do trade reforms and trade expansion play in explaining changes in the share of informal employment? How does trade opening affect the relative wage of informal compared to formal workers? While the long-term allocative effects of trade opening have been extensively studied by trade economists since at least the eighteenth century the short- and medium-term impact of trade reforms on the composition of employment the wage structure and unemployment only started to attract the attention of researchers in the early 1990s (Agénor 1995). This chapter contains two parts. First a summary of theoretical approaches concerning the impact of trade on informality is provided. Second empirical studies aimed at validating different theoretical hypotheses are discussed.
Globalization and informal employment: An empirical assessment
This chapter sheds further light on the linkages between trade reforms integration into the world economy and the size of the informal economy. It presents an empirical analysis based on a new database that regroups information on the incidence of informality and the size of the shadow economy. The chapter aims to clarify the multifaceted nature of the globalization process and its implications for labour markets in developing countries. It starts by describing the main questions that arise from the discussion in the previous chapters. It then provides an overview of the empirical material and the methodology used before presenting the results.
Executive summary
Over the past decade world trade has expanded signifi cantly. By 2007 global trade had reached more than 60 per cent of world GDP compared with less than 30 per cent in the mid-1980s. Few would contest that increased trade has contributed to global growth and job creation. However strong growth in the global economy has not so far led to a corresponding improvement in working conditions and living standards for many. Absolute poverty has declined thanks to the economic dynamism of recent years the efforts of private companies migrant workers and their remittances and the international development community. Nevertheless in many instances labour market conditions and the quality of employment growth have not improved to the same degree. In many developing economies job creation has mainly taken place in the informal economy where around 60 per cent of workers fi nd income opportunities. However the informal economy is characterized by less job security lower incomes an absence of access to a range of social benefi ts and fewer possibilities to participate in formal education and training programmes – in short the absence of key ingredients of decent work opportunities.
Robust policies for an uncertain world
This report argues that informality in developing countries deprives about 60 per cent of the workers in these countries of proper income and career opportunities. At the same time high informality rates limit government resources which could be used productively and depress the growth of aggregate demand hampering a country’s successful integration into the world economy. This means that successful formalization strategies would not only improve the working conditions of large segments of the labour market in those countries they would also constitute a signifi cant engine of further growth of both the individual country and the world economy. At the same time the study argues that the integration of a country into the world economy – if properly managed – can help informal workers by improving their living standards and giving them access to decent working conditions. Integration into world markets and tackling informal employment should thus be considered complementary as only formal jobs allow a country to benefi t fully from trade openness.
Impact of informality on trade and growth
The effects of a large informal economy on a country’s capacity to engage in international trade have not yet been the subject of extensive empirical research. Several case studies of experiences in individual countries show diverging results or at the very least allow a contradictory reading of the evidence. Nevertheless the impact of informality on certain proximate causes for trade and growth has been analysed both theoretically and empirically.
Globalization and informal jobs in developing countries
This study focuses on the relationship between trade and the growth of the informal economy in developing countries. Based on existing academic literature complemented with new empirical research by the ILO and the WTO the study discusses how trade reform affects different aspects of the informal economy. It also examines how high rates of informal employment diminish the scope for developing countries to translate trade openness into sustainable long-term growth.