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Info Service on WTO and Trade Issues (Oct23/06) Yerevan, 5 Oct (D. Ravi Kanth) — The Trade and Development Report (TDR) 2023 of the United Nations Conference on Trade and Development (UNCTAD) has drawn a bleak future for the global economy, with the growth of world economic output expected to decelerate to 2.4 percent in 2023, before registering a small up-tick to 2.5 percent in 2024. According to UNCTAD’s flagship report, released on 4 October, these are among the lowest growth rates of the last four decades, outside of crisis years. Moreover, the figure for 2023 is below the conventional threshold of 2.5 percent which marks a recession in the global economy, it said. All regions, except for East and Central Asia are expected to post slower growth this year than in 2022, with the largest drop (2.3 points) occurring in Europe. The TDR also predicts that the larger emerging economies are unlikely to provide a robust offset to slower growth in advanced economies. In this scenario, the challenges facing developing and least developed countries will continue to grow with low prospects of international trade being an engine of growth, it added. According to the TDR, “after experiencing a roller coaster ride in 2020-2022, global trade in goods and services is forecast to grow about 1 per cent in 2023, significantly below world economic output growth. It is also lower than the average growth registered during the last decade, itself the slowest average growth period for global trade since the end of the Second World War. In the medium term, trade is heading back to its subdued pre-crisis trend; in the near term, it will stand even below this figure, despite global trade in services showing a relative resilience, because the growth of merchandise trade hovers in negative territory in 2023”. The TDR highlights that the subdued trade outlook coincides with a renewed focus on policy matters. The asymmetry of gains from the international trading system has been building into a backlash against the rules of global governance and, increasingly, the very idea of free trade, it said. The new buzzwords such as “fragmentation”, “de-globalization”, “slowbalization”, “re-shoring”, “near-shoring”, “friend-shoring”, “de-risking”, “decoupling”, “open strategic autonomy” and “new industrial policy” have contributed to this backlash and prompted policymakers to reassess their strategic prioritization of the role of trade. The TDR further highlights that in the unfolding policy debate on the regulatory architecture of global trade, the potential costs of deeper trade relations are no longer seen as marginal. Similarly, the notion that the benefits from deregulation reforms would flow automatically is being strongly contested. To face the contemporary global challenges, the TDR suggests that the developing countries need to revisit their existing trade agreements at the bilateral, regional and multilateral levels in order to create policy space to re-design their production, consumption and trading profiles. In this context, the TDR strongly supports the Group of 90 (G90) proposal at the WTO to revisit ten specific multilateral trade agreements, which include the Agreement on Subsidies and Countervailing Measures (ASCM), the Agreement on Trade-Related Investment Measures (TRIMs), and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). According to the report, the G90 proposal seeks to strengthen existing flexibilities for developing members to make them more precise, effective and operational so that they may be able to more effectively address their development goals. “Failure to address these concerns may result in growing asymmetries, which will make it even more difficult for the world to deliver on its Agenda 2030.” In this context, the TDR also underscores the need to preserve the core WTO principles, namely “special and differential treatment” and “voice and solidarity”, which is consensus decision-making at the WTO. It has also expressed concerns over the new initiatives of advanced countries which will adversely impact global trade, namely, the carbon border adjustment mechanism (CBAM) and the Deforestation Regulation (EUDR). The CBAM is scheduled to be implemented in October 2023, while the EUDR entered into force in June 2023. According to the TDR, these initiatives have raised concerns around the world, especially among developing countries. Several countries, including China, are expected to challenge it at the WTO, partly because the introduction of distinct carbon pricing certificates based on a product’s country of origin might infringe upon the WTO’s “most favoured nation” (MFN) principle. Moreover, they risk unfairly penalizing the exports of developing countries because these economies have often less capacity to adapt to new specific standards, it said. Furthermore, by imposing equal carbon taxes on developed and developing nations, the proposed CBAM would also violate the Paris Agreement principle of “common but differentiated responsibilities (CBDR)”. With respect to the EUDR, the TDR said that exporting countries are concerned that the traceability requirement will be impractical and could constitute a de facto import ban. It emphasizes that while it is important for every nation to acknowledge its role in addressing a common global challenge like climate change or deforestation, it is unfair to place equal demands on less affluent countries, compared to wealthier ones. “Historically, wealthier countries have generated a greater amount of carbon emissions over time – and continue to do so. Many of them have also significantly reduced their forests.” This calls for better alignment between the non-discrimination and the CBDR principles, for which the coherence between special and differential treatment provisions (SDT) and CBDR is required, which could offer a starting point for understanding a development-sensitive approach to the trade-climate nexus, it said. Another concern raised by the TDR is over the industrial policy initiatives being adopted in advanced countries, which may result in shorter supply chains. To counter this, developing countries will need to look for new outlets to diversify their export markets. In this context, it said regional trade as well as South-South trade can provide a significant opportunity. Since 1995, South-South merchandise trade has grown faster than global trade and faster than North-South trade. In 2022, South-South trade accounted for around 54 per cent of South’s total trade. South-South trade has also grown steadily in food, fuel, ores and metals, and fertilizers, with many developing countries, including Brazil, China, India, Indonesia and Thailand playing major roles. An important issue raised in the TDR is regarding the growing food insecurity in the world and the restrictive rules of the Agreement on Agriculture which do not allow developing countries to design appropriate food security programs like the public stockholding of food. Given the increasing volatility in food prices, at the 9th Ministerial Conference in Bali in 2013, it was agreed that there is a need to update the rules under the Agreement on Agriculture with respect to public stockholding of food. Until a permanent solution is found, a “peace clause” will prevail which implies that members would temporarily refrain from lodging complaints against any developing country which exceeds its de-minimis limits. While many proposals have been tabled with respect to public stockholding, even after a decade, a permanent solution has not been agreed. The TDR underscores the urgency to provide flexibility in the existing rules and a permanent solution at the upcoming MC13 in February 2024. Apart from the Aggregate Measurement of Support (AMS), advanced countries are also able to provide billions of dollars of subsidies to their farmers under the “green box” subsidy, which are supposed to be non-trade- distorting. However, the TDR provides theoretical and empirical evidence which shows that the “green box” subsidies shift the global production of food towards un-competitive producers in advanced countries, which have the financial resources to provide these subsidies, thereby adversely impacting the incomes of farmers in developing countries. Hence, there is a need to discipline “green box” subsidies to ensure more equitable distribution of gains from production and trade in food. Furthermore, the TDR argues that there is a need to improve the integration of small farmers into the domestic and international markets, raising their bargaining power, and making the gains from trade reach the poorest farmer. “This requires addressing the high concentration of food markets and discouraging speculative behaviour with adequate regulations. Breaking the food monopolies and revisiting WTO Agreements to provide policy space to developing countries becomes critical for progressing towards global food security.” The TDR concludes by underscoring that for the future trade outcomes to be positive, policymakers will need a bold pro-developmental and cooperative approach which can address both old and new fault lines in the international trading system. +
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