Economic research and trade policy analysis
World Trade Report 2023
The establishment of the multilateral trading system over seven decades ago was based on the understanding that interdependence and cooperation contribute to peace and shared prosperity. More recently however new challenges such as geopolitical tensions rising inequalities and climate change have led to fears that globalization exposes countries to excessive risks. Such fears have increased pressures to unwind trading relationships and turn to unilateral policies through a process of fragmentation. This year’s World Trade Report examines the benefits of integration into world trade as well as the risks of fragmentation. It shows that trade has proved to be a source of security and peace a driver of poverty reduction and a critical tool for addressing climate change. The Report argues that to make our economies more secure inclusive and sustainable re-globalization – or integrating more people economies and pressing issues into global trade and strengthening multilateral cooperation – is a much more effective solution to global challenges than fragmentation. Global problems need global solutions meaning that today’s world needs more cooperation not less. A reinvigorated multilateral trading system overseen by the WTO has an important role to play in this process.
The reshaping of global trade
This chapter shows that despite difficulties in the global trade policy landscape global trade flows have been resilient and continue to evolve in a direction that is more sustainable and inclusive. Narratives surrounding the benefits of globalization have turned more sceptical in the past decade. These narratives have started to reflect in global trade as the first policy-driven fractures appear in the system. Yet the digital revolution continues to promote economic integration by facilitating trade in goods and even more so in services. There is still significant potential for trade to contribute further to the growth of the world economy and to bring further benefits to developing economies via the expansion of global value chains. However if the untapped potential of new trade flows is to be accessed policies must remain outward-looking.
Executive summary
The multilateral trading system overseen by the World Trade Organization was created just over 75 years ago based on the vision that fostering interdependence among economies would play a crucial role in achieving peace and prosperity. This vision had emerged as a central lesson from three disastrous decades of deglobalization marked by two world wars the Great Depression and political extremism. For three-quarters of a century it has guided policymakers as they laid the foundations for the integrated world we inhabit today.
Re-globalization to reduce poverty and inequality
This chapter discusses how fragmentation could have a negative impact on growth poverty and inequality and how re-globalization could help to ensure that the gains from trade are spread more broadly both between and within economies. Opening up trade in agriculture and services and developing new e-commerce rules could boost growth reduce poverty and make the global economy more inclusive. The WTO can help to facilitate a more inclusive global trading system by updating trade rules at the multilateral level and by working with other international organizations to ensure more people benefit from world trade.
Re-globalization to promote environmental sustainability
This chapter examines the complex interplay between trade and environmental sustainability. It evaluates the potential risks associated with a fragmented approach to climate change and other environmental challenges and it explores the benefits of re-globalization – or greater international cooperation – for sustainability in the context of various types of environmental policies and their cross-border effects. The chapter also emphasizes the critical importance of multilateral cooperation in enabling effective environmental protection while fostering equitable global growth.
Foreword by the WTO Director-General
The post-1945 international economic order was built on the idea that interdependence among nations through increased trade and economic ties would foster peace and shared prosperity. For most of the past 75 years this idea guided policymakers and helped lay the foundation for an unprecedented era of growth higher living standards and poverty reduction. Today this vision is under threat as is the future of an open and predictable global economy.
The impact of security concerns on trade
A series of crises over the past years has changed the perceptions about trade and interdependence. What used to be considered as critical to economic progress and security is now sometimes perceived as a source of risk that needs to be limited. Moreover security concerns are no longer exclusively expressed in relation to conflict but encompass the much wider notion of economic security. As a result security concerns percolate through trade policy more widely. This chapter highlights that despite disruptions in global supply chains trade remains a source of security especially when embedded in a multilateral rules-based system. It argues that fragmentation would weaken security and increase the likelihood of conflict while re-globalization is a more promising avenue to strengthen security going forward.
Introduction
The ideas that shaped today’s globalized world were a response to the disastrous deglobalized world of the first half of the 20th century. Having seen how a closed and divided world economy contributed to economic depression conflict and ultimately the Second World War the post-war architects resolved to build an open and integrated world economy instead. Freer trade would deliver shared growth and development. Economic interdependence would give countries a stake in each other’s success. International rules and institutions would promote stability trust and collaboration. The antidote to zero-sum economic nationalism was positivesum global economic cooperation.
Conclusion
For almost seven decades now economies around the world have been opening their markets to each other recognizing that interdependence and cooperation create shared prosperity. However severe challenges such as the financial crisis of 2008-09 the COVID-19 pandemic and the war in Ukraine now threaten to undermine this vision highlighting a number of risks inherent in a globalized world. As a result some have begun to question the benefits of globalization. The implication of this way of thinking is a more fragmented less integrated world. Fortunately this has not happened yet. There is still time to act but as this report shows the changing narrative on globalization has already translated into heightened tensions and first signs of geoeconomic fragmentation in trade.
Acknowledgements and Disclaimer
The World Trade Report 2023 was prepared under the general responsibility and guidance of Anabel González WTO Deputy Director-General and Ralph Ossa Director of the Economic Research and Statistics Division. Director-General Ngozi Okonjo-Iweala Chief of Staff Bright Okogu and Trineesh Biswas from the Office of the Director-General provided valuable advice and guidance. The report was coordinated by Alexander Keck and Victor Stolzenburg.
Trade finance in the Mekong region
Cambodia the Lao People’s Democratic Republic and Viet Nam – the so-called Mekong-3 - have experienced rapid trade growth over the last ten years. However growth could be boosted even further by improving access to trade finance such as loans and guarantees for locally owned businesses seeking to trade globally. This publication presents the results of two surveys undertaken by the IFC to determine the level of trade finance available to businesses in the Mekong region. An analysis of the data conducted by the WTO explores the potential impact of an expansion in trade finance and how this could lead to greater integration into world trade and more inclusiveness with increased participation in global supply chains by small businesses and women-owned enterprises. The publication is intended to serve as a guide to how domestic financial sectors can reorient their operations to support cross-border trade and enhanced access to global markets.
Estimating total trade finance assets: methodology
The estimation of the total value of trade finance in a country considers the relationship between bank assets in the country based on published data and trade finance assets identified in the survey. This relationship can take the functional forms of either a power law distribution or the asset variables can be proportional to each other.
Counterfactual analysis
The bank survey contains information on the costs of trade finance the share of trade covered by trade finance and the trade finance gap. This information is used to generate projections of the trade effects of changes in the price and availability of trade finance. The WTO Global Trade Model (GTM) a computable general equilibrium model is used to simulate the effects of changes in trade costs because of changes in the price and availability of trade finance. This annex describes the economic model employed explores how the trade costs of financing international trade are modelled and outlines how trade finance shares and the costs of the trade finance instruments are calibrated in the baseline and counterfactuals.
Executive summary
Cambodia the Lao People’s Democratic Republic (PDR) and Viet Nam – referred to here as the Mekong-3 – have established themselves as one of the most dynamic and trade-led regions of the world. In 2022 the value of trade flows surpassed GDP in all three economies. The trade-to-GDP ratio was particularly high in Cambodia and Viet Nam at over 210 and 185 per cent respectively – several times higher than the global average of 62 per cent. The value of total trade flows has tripled in Cambodia and Viet Nam and more than doubled in the Lao PDR in the past decade.
Conclusions
The Mekong-3 – Cambodia the Lao People’s Democratic Republic (PDR) and Viet Nam – are deepening their trade integration increasing the volume and value of their exports and strengthening their participation in global value chains (GVCs). This expansion of opportunities for new traders in new markets generates expectations of growing demand for trade finance in the coming years.
Acknowledgements
This publication is the result of a joint effort of the IFC and the WTO and was prepared under the guidance of Susan Lund Vice President of Economics at the IFC and Ralph Ossa Chief Economist of the WTO. Nathalie Louat and Denis Medvedev of the IFC and Marc Auboin of the WTO provided leadership for the research. Marcio Cruz Maty Konte Francesca de Nicola Alexandros Ragoussis and Trang Thu Tran of the IFC and Eddy Bekkers and Alexei Timofti of the WTO managed the project teams across the two organizations. Working team members included: Karlygash Dairabayeva Milagros Deza and Gianluca Santoni of the International Bank for Reconstruction and Development (IBRD); Stephanie Annijas Gbenoukpo Robert Djidonou Sarah Hebous Ibrahim Nana Alexander Vanezis and Ariane Volk of the IFC; and Kirti Jhunjhunwala Saptarshi Majumdar and Ruoyi Song of the WTO.
Foreword
The expansion of trade depends on reliable adequate and cost-effective sources of trade financing which help to fill the time gap during which goods are produced shipped and paid for. Trade finance is routinely supplied to exporters and importers by banks and other financial intermediaries which mitigate the financial and payment risk involved in crossborder trade. While developed countries can often rely upon large and advanced economic sectors mobilizing sophisticated trade finance instruments such as supply chain finance significant shortages exist in developing countries. These shortages can have many reasons both international (inflation availability of correspondent banking relationships country risk) and local (level of development and expertise of the financial sector cost access to finance by local firms).
Introduction
In June 2022 at the WTO’s 12th Ministerial Conference (MC12) the entire WTO membership recognized that the world is facing “global environmental challenges including climate change and related natural disasters loss of biodiversity and pollution”. It also noted “the importance of the contribution of the multilateral trading system to promote the UN 2030 Agenda and its Sustainable Development Goals in its economic social and environmental dimensions in so far as they relate to WTO mandates and in a manner consistent with the respective needs and concerns of Members at different levels of economic development”. This acknowledgement came after an increased level of discussions at the WTO’s Committee on Trade and Environment (CTE) and other WTO bodies and initiatives on how trade and trade-related policies could be harnessed and better aligned with climate objectives.
Foreword by Director-General Ngozi Okonjo-Iweala
Even though trade is indispensable for both climate change mitigation and adaptation it has too often been overlooked in the global response to the climate crisis. This is set to change at COP28 where under the presidency of the United Arab Emirates trade will feature prominently on the agenda.
Trade Policy Tools for Climate Action
Trade Policy Tools for Climate Action a publication by the WTO Secretariat looks into the trade policies that governments could consider as part of their strategies for climate change mitigation and adaptation. The publication covers ten policy areas where governments have introduced measures to support the transition to a low-carbon economy improve the flow of climate-friendly goods and services decarbonize supply chains and build resilience to extreme weather events and climate change. Launched at COP28 the publication is intended to shed light on how trade policy actions for climate could accelerate the transition to a climate-friendly global economy as part of the WTO Secretariat’s efforts to encourage the full use of the power of trade to deliver on collective sustainable development objectives including those in relation to the climate crisis.
Executive summary
Trade has an important role to play in the global response to climate change providing economies with tools to draw on in their efforts to mitigate climate change and to adapt to its consequences.
Acknowledgment
This report was approved by Kenneth Kang (Deputy Director Strategy Policy and Review Department IMF) Marion Jansen (Director Trade and Agriculture Directorate OECD) Shamika Sirimanne (Director Division on Technology and Logistics UNCTAD) Mona Haddad (Global Director Trade Investment and Competitiveness The World Bank) Ralph Ossa (Director Economic Research and Statistics Division WTO).
Conclusions
This joint report has looked into the role of digital trade in development and how economies can work together to reap the full benefits of digital trade for a more resilient and inclusive global trading system.
Digital Trade for Development
This report explores the opportunities and challenges for developing economies arising from digital trade and discusses the role of international cooperation in tackling these opportunities and challenges. The report considers policy actions in the areas of digital infrastructure skills international support for capacity development and the regulatory and policy environment. Specific policy issues include the WTO e-commerce moratorium regulation of cross-border data flows competition policies and consumer protection.
Introduction
Trade has played an important role in fostering economic growth promoting income convergence among economies and lifting hundreds of millions of people out of poverty (World Bank and WTO 2015). The expansion of global value chains (GVCs) (ADB 2021) has been a driving factor behind this growth. Some people firms and economies have however missed out and not fully benefited from trade opportunities.
Literature review on studies analysing the customs revenue implications of the WTO moratorium on customs duties on electronic transmissions
The first attempt to estimate the foregone customs revenue of the WTO moratorium on customs duties on electronic transmissions was undertaken by Schuknecht and Pérez-Esteve (1999). They used a list of goods that included cinematographic film newspapers and videogames to provide upper bound estimates of possible tariff revenue losses based on the assumption that all trade that could be digitized would be digitized. The analysis suggests that the potential foregone revenue effects would amount to less than 1 per cent of total tariff revenue across most economies. The paper also highlighted the strong potential for electronic transmissions to enhance services trade underscoring that tariff revenue losses would need to be weighed against gains arising from growing trade in services (see also Mattoo and Schuknecht (2000) and Mattoo Pérez-Esteve and Schuknecht (2001).
Executive summary
This report explores the opportunities and challenges for developing economies arising from digital trade and discusses the role of international cooperation in tackling these opportunities and challenges. The report considers policy actions in the areas of digital infrastructure skills international support for capacity development and the regulatory and policy environment. Specific policy issues include the WTO e-commerce moratorium regulation of cross-border data flows competition policies and consumer protection.
Executive Summary
The main theme of the 2023 Global Value Chain Development Report is the resilience and sustainability of value chains in response to the diverse shocks of recent years.
Global Value Chain Development Report 2023
The Global Value Chain Development Report 2023 the fourth in this biennial series is released at a critical juncture in the evolution of Global Value Chains (GVCs). In response to the diverse shocks of recent years this report explores approaches to build resilient and sustainable GVCs. It provides an overview of the most recent trends in GVCs assesses the effects of the trade tensions and the COVID-19 pandemic on GVCs and illustrates particular changes of energy and semiconductor supply chains. It also analyzes the challenges of climate change to GVCs and proposes a framework of greening value chains and policy options for enhancing inclusive development through GVC participation.
Publishing Partners
The Global Value Chain Development Report 2023: Resilient and Sustainable GVCs in Turbulent Times is jointly published by the Research Institute for Global Value Chains at the University of International Business and Economics (RIGVC-UIBE) the Asian Development Bank (ADB) the Institute of Developing Economies – Japan External Trade Organization (IDE-JETRO) and the World Trade Organization (WTO).