Latest news, Stats & data, WTO crisis and reform

WTO report warns of early signs of trade ‘fragmentation’

Current geopolitical tensions are starting to have a measurable effect on international trade, the World Trade Organization warned.

In its World Trade Report for 2023, released today, the WTO said it detected “early indications of trade fragmentation”, as countries sought to boost trade with like-minded partners in preference to countries which were seen as more of a geopolitical risk.

But despite these early warning signals, the organisation said that it did not as yet see any strong evidence of what it called “broad-based deglobalisation”.

In a foreword to the report, WTO director-general Ngozi Okonjo-Iweala spoke of a “threat” to the rules-based system which underpins international trade.

“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 […] Today this vision is under threat, as is the future of an open and predictable global economy,” she wrote.

Slower growth in trade between ‘geopolitical blocs’

A striking statistic in the WTO report is that trade between ‘hypothetical blocs’ had grown 4-6% less rapidly than trade within these blocs since the onset of war in Ukraine in February 2022.

These blocs, the report explained, were based on “foreign policy similarity indices” derived from data such as voting patterns at the UN.

At the same time, the WTO also appears anxious to distance itself from accusations of alarmism.

“Despite these developments, claims of de-globalization are still greatly exaggerated,” it goes on to state. “In fact, there are also clear signs of re-globalization and greater international cooperation.”

But even where the evidence supports the thesis that globalization remains alive and well, closer analysis of the data can show a more nuanced picture.

An example is the amount of bilateral trade between fierce rivals China and the US, which reached a record high in 2022.

However, “its composition underwent changes aligned with tariff measures, with trade slowing down sharply in some product categories such as semiconductors”.

Change in narrative impacts trade flows

“There is a change in the narrative on geopolitics, and it’s beginning to have an effect on trade flows,” said WTO chief economist Ralph Ossa, who presented the report at a press conference in Geneva on Tuesday.

“We don’t see evidence for broad-based de-globalisation. But my sense is that globalisation is at a crossroads, and if tensions continue to escalate, it won’t help international trade.”

Other indicators in the report confirm the thesis that the complicated geopolitical conditions of recent times are impacting trade policy.

One such indicator is the fact that national security-related trade concerns were raised 11 times in WTO committees over the course of 2022.

This is equal to the number of such notifications in the entire period between 1997 and 2008.

‘Bottleneck’ products take growing share of global trade

The report also pointed to an increase in the prevalence of so-called “bottleneck” products in global trade.

These are defined as products for which a large number of countries are dependent for their supplies on a relatively small number of countries – thus causing disproportionate disruption in case of any issue with the supply chain.

“Bottleneck products accounted for around 9% of global trade in most of the post-2000 period, but their share increased to 19% in 2022,” said report coordinator Alexander Keck.

“Trade has shifted to products like semiconductors and cell phones, where production is concentrated in just a few economies.”

Trade ‘more digital, clean and inclusive’

As global cheerleader for the world trading system, the WTO has also been quick to pick up in its report on positive developments over the year in review.

“Trade has also become more digital, green and inclusive,” the report claims.

“The digital revolution has bolstered trade in digitally delivered services by sharply reducing the costs of trading these services.

“The value of global trade in environmental goods has increased rapidly, outpacing total goods trade.

“And global value chains (GVCs) have expanded to encompass more economies – for example, Cambodia, Romania and Vietnam have seen a particularly rapid increase in their GVC participation.”

For Okonjo-Iweala, the report is evidence of the risks of continuing trade fragmentation, but also of the prizes which are on offer if WTO members recommit to a rules-based system.

“The WTO is not perfect — far from it. But the case for strengthening the trading system is far stronger than the case for walking away from it,” she said.

Leave a Comment

Your email address will not be published. Required fields are marked *


This site uses Akismet to reduce spam. Learn how your comment data is processed.