Report to the TPRB from the WTO Director-General on trade-related developments
This trade-monitoring report reviews trade-related developments during the period from 16 October 2015 to 15 May 2016. During this seven-month period, there seems to have been a relapse in WTO Members’ efforts at containing protectionist pressures. Not only is the stockpile of trade-restrictive measures continuing to increase, but also more new trade restrictions were recorded during the period, covering both import and export measures.
The implementation of new trade-restrictive measures by WTO Members increased over the review period. Since mid-October 2015, WTO Members applied 154 new trade-restrictive measures – an average of 22 new measures per month compared to 15 in the previous interim report. Import tariff increases, customs procedures and various local content measures constitute the main factors behind this upward trend in the overall monthly figure. The 22 new trade-restrictive measures adopted per month by WTO Members are close to the peak observed in 2011 of 23 new measures per month.
During the same period, WTO Members implemented 132 measures aimed at facilitating trade. At almost 19 trade-facilitating measures per month, this represents an increase over the previous mid-year report’s monthly average of 16 measures. However, the trade-facilitating monthly average remains below the monthly average of trade-restrictive measures, thus reversing the positive trend identified over the past years.
Overall, the stockpile of restrictive measures introduced by WTO Members continues to grow. Of the 2,835 trade-restrictive measures (including trade remedies) recorded for WTO Members since 2008, only 708 had been removed by mid-May 2016. The total number of these restrictive measures still in place now stands at 2,127 – an increase of more than 11% during the review period. Although some WTO Members have been eliminating trade-restrictive measures, the rate at which this is done is far too low to dent the overall stockpile of restrictive measures. Of the total number of trade-restrictive measures recorded for WTO Members since 2008, the share of eliminations, or roll-back, makes up 25%.
World trade was volatile in 2015 as diverging outlooks for developed and developing economies unsettled global financial markets and prompted sharp movements in commodity prices and exchange rates. The volume of world merchandise trade grew by 2.8% last year as trade fell sharply in the first half of the year before recovering in the second half. Weak import growth in developing economies (0.2%) was cushioned by stronger import demand in developed countries (4.5%). Import growth was particularly weak in large emerging economies such as China (-4%) and Brazil (-15%). Meanwhile, exports grew slightly faster in developing economies (3.3%) than in developed countries (2.6%). This was balanced by stronger positive import growth in the United States (6.5%) and the European Union (4.5%). Despite positive trade growth in volume terms, the dollar value of world trade fell sharply (-13% for merchandise, -6% for services), largely as a result of lower commodity prices and the general appreciation of the U.S. dollar.
Prospects for 2016 and beyond remain uncertain. The most recent WTO trade forecast of 7 April 2016 predicted merchandise trade volume growth of 2.8% in 2016, unchanged from 2015, but volatility is likely to persist. Exports of developed and developing economies should grow at around the same rate (2.9% in the former and 2.8% in the latter). Meanwhile, imports of developed economies are expected to outpace those of developing countries, with an increase of 3.3% compared to a rise of 1.8%. Preliminary trade volume statistics for the first quarter of 2016 indicate that world trade fell around 1% in the first quarter of 2016 compared to the last quarter of 2015.
The number of trade remedy investigations initiated by WTO Members has increased during the review period. Metal products, and in particular steel products, chemicals and plastics and rubber account for the largest shares of these initiations. As for previous review periods, more initiations were recorded than terminations, and anti-dumping measures made up the overwhelming majority of trade remedy actions.
The analysis of sunset reviews of anti-dumping and countervailing measures initiated in 2008 and 2009 seems to indicate that there is no discernible change in extensions versus expiry of measures coinciding with the financial crisis.
During the review period, the Committees on Sanitary and Phytosanitary (SPS) measures and on Technical Barriers to Trade (TBT) saw significant developments. The share of SPS notifications from developing countries remained high, accounting for about two-thirds of all notifications, and confirming the increased participation of developing countries in the total number of notifications since 2007. An increase in the number of notifications does not, however, automatically imply greater use of measures taken for protectionist purposes. In the TBT area, the Committee has recorded a significant increase in the number of specific trade concerns (STCs). The 116 new and previously-raised STCs discussed during review period confirm the upward trend, observed over the past years, of a greater number of STCs being raised in the TBT Committee.
In the area of agriculture, despite poor notifications’ compliance recorded for some Members, the whole membership continued to use Article 18.6 of the Agreement on Agriculture (AoA) to ask questions on the implementation of commitments. A large number of these questions focused in particular on Members’ domestic support policies.
This report suggests that general economic support measures implemented by WTO Members are on the rise. The monthly average of 14 such measures recorded in the review period approaches the number recorded immediately after the onset of the global financial crisis. However, the numerical counting of such measures and programmes does not provide any indication regarding the extent of these measures, nor their potential impact. The main beneficiaries of such support during the review period included multiple sectors, infrastructure programmes (including several energy-related projects), various industries in the manufacturing sector, the agricultural sector and the telecommunications sector. Several programmes provided specific support to export-related activities or enterprises, including SMEs. Several important policy developments in a very diverse range of services sectors took place during the review period. The overwhelming majority of these services measures see either further liberalization of trade in services or the strengthening and clarification of relevant regulatory requirements.
The OECD has contributed two topical boxes to this report. The first looks at the evolving agricultural policies and markets and the implications for multilateral trade reform. The second seeks to assess the gains from implementing the WTO Trade Facilitation Agreement (TFA).
Several other important trade-related developments also took place during the review period, including in the areas of the Trade Facilitation Agreement, the Information Technology Agreement expansion and the Agreement on Government Procurement.
The overall assessment of this monitoring report has outlined the profound volatility which characterizes world trade today and the current unsettled nature of international financial markets. Despite a number of positive developments, the global environment remains challenging. To address slow economic growth, Members need to get trade moving again, not put up barriers between economies. The best safeguard we have against protectionism is a strong multilateral trading system.
Recent Economic and Trade Developments
The volume of world merchandise trade partially recovered in the second half of 2015 following a sharp decline in the first half that affected all major economies to varying degrees. Import growth was sluggish in developing Asia and negative in regions that predominantly export natural resources. These slowdowns were cushioned by stronger import demand in Europe and North America as economic activity picked up in those regions.
Global trade volume growth for the whole of 2015 was 2.8%. Despite the modest, positive growth in global trade volumes, the dollar value of world merchandise trade fell sharply in 2015, dropping by 13% to US$16.0 trillion largely as a result of lower commodity prices and a general appreciation of the U.S. dollar. The value of world commercial services trade also declined by 6% to US$4.7 trillion in 2015.
Several factors contributed to the lacklustre performance of trade in 2015, including: slowing economic growth in China and the rebalancing of the country’s economy away from investment and towards consumption; recessions in other large developing economies, particularly Brazil; falling petroleum prices, which reduced the export revenues of oil producing countries; and volatility in exchange rates and financial markets, possibly exacerbated by divergent monetary policies in the United States, Europe and China.
2015 marked the fourth consecutive year with world trade volume growth below 3%, as well as the fourth year in a row with world trade growing at close to the same rate as world GDP. Growth rates for trade and output in 2015 were also below their average rates since 1990 of 5% and 2.7%, respectively. The slow pace of trade growth relative to GDP growth over the past four years stands in contrast to the period from 1990 to 2008, during which merchandise trade grew 2.1 times as fast as world GDP on average.
The recent spell of slow trade growth is unusual, but not unprecedented, and as a result its importance should not be exaggerated. World trade volume growth was in fact weaker between 1980 and 1985, when five out of six years saw trade growth below 3%, including two years of outright contraction.
Strong fluctuations in exchange rates since 2014 have had a strong impact on nominal trade statistics, most of which are denominated in current U.S. dollars. In January 2016, the U.S. dollar was up 19% compared to January 2014. Although the dollar has weakened somewhat since then, it was still up 13% in April 2016 compared to January 2014. The appreciation of China’s yuan has also moderated since the last monitoring report.
Dollar appreciation can cause trade denominated in other currencies (e.g. intra-EU trade) to be undervalued when measured in dollar terms. As a result, trade statistics in nominal dollar terms should be interpreted with care under current circumstances.
Prices for oil and other primary commodities bottomed out in January-February but have rebounded somewhat since then. The traditional inverse relationship between the level of the U.S. dollar and the price of oil has continued to hold, with the recent easing of the dollar mirrored by a modest rise in fuel prices. Despite the rebound, fuel prices were still down around 60% in April compared to the beginning of 2014. Further production declines could bring about a partial recovery in fuel prices, although a return to US$100 oil/barrel is unlikely.
Other Selected Trade Policy Developments
Following the adoption of the amendment protocol, delegations started to launch their domestic processes for ratifying the Trade Facilitation Agreement. As at 3 May 2016, 77 acceptance instruments were deposited, which represents more than 70% of the ratifications required for the Agreement to enter into force. Members also continued to notify the commitments they designated for implementation as of the Agreement’s entry into force. As at 3 May 2016, 83 of those so-called “category A-notifications” were presented. Delegations already started to notify the commitments they consider to require more time (“category B”) and the acquisition of implementation capabilities through the provision of assistance and support for capacity building (“category C”). Four such category B and C notifications were received by time of reporting (3 May 2016).
The new WTO Trade Facilitation Agreement Facility that was launched in 2014 was put into action in 2015 and aims to provide a platform for information on WTO trade facilitation and to help developing and least-developed members find the assistance they need for the preparation of notifications, ratification of the Agreement, and for its implementation. It also aims to coordinate donor assistance.
To achieve these goals, a new Facility website was created to provide information on donor programmes, to provide case studies and other materials to assist with implementation and to track progress on ratification and notifications received. The Facility conducted, or was involved in, eight events for Parliamentarians to help them gain a better understanding of the new Agreement. The Facility assisted Members to prepare their category A, B and C notifications by conducting national and sub-regional workshops; and by coordinating with partner organizations to conduct workshops. It also assisted Members to find support for implementation of the Agreement in a variety of ways, for example, by providing donor information on the Facility website, by organizing workshops featuring the available donor support, and by direct matchmaking.
The membership of the Agreement on Government Procurement (GPA) continues to grow. Since the previous report, Ukraine and the Republic of Moldova have concluded the negotiations on their accessions to the Agreement. Following the deposit by Ukraine of its instrument of accession, the Agreement came into force for Ukraine on 18 May 2016. This brings the total number of WTO Members covered by the Agreement to 46. The deposit of the Republic of Moldova’s instrument of accession is expected to be done by 16 June 2016.
Further additions to the membership of the Agreement are expected in the short to medium term. Negotiations on Australia’s accession are progressing well and further discussions were held on Tajikistan’s and China’s accessions. The process of the Kyrgyz Republic’s accession was resumed early this year. Four other WTO Members — Albania, Georgia, Jordan and Oman have applied to join the GPA. Another six WTO Members have provisions regarding accession to the Agreement in their respective Protocols of Accession to the WTO, i.e. Kazakhstan, Mongolia, the Russian Federation, the Kingdom of Saudi Arabia, Seychelles and the former Yugoslav Republic of Macedonia.
Under the newly concluded WTO ITA Expansion agreement, import duties will be eliminated on 201 high‐tech products whose annual trade is estimated at $1.3 trillion, accounting for approximately 10% of world trade in goods. Products covered by the ITA Expansion include new generation multi‐component integrated circuits (MCOs), touch screens, GPS navigation equipment, portable interactive electronic education devices, video game consoles, and medical equipment, such as magnetic resonance imaging products and ultra‐sonic scanning apparatus.
The ITA Expansion will result in the rapid and meaningful liberalization of trade in new generation IT products. According to preliminary estimates by the WTO Secretariat, customs duties on 95.4% of Participants’ imports on these products will be fully eliminated by 2019. Negotiations were conducted by 24 Participants, representing 53 WTO Members and accounting for approximately 90% of world trade in these products. The ITA Expansion agreement is open to any other WTO Member wishing to join it.
During the review period, there were 13 new requests for consultations, eight new panels established by the Dispute Settlement Body (DSB), five Appellate Body proceedings, three Article 21.3(c) awards and two Article 22.6 arbitration awards. As at mid-May 2016, there were 16 active ongoing panels, one active compliance panel proceeding under Article 21.5, three panel requests pending before the DSB, and four panels and one compliance panel have been established with panel composition under way. In addition, there were two composed panels and one arbitration under Article 22.6 that were awaiting staff to assist them.
As in previous years, the subject-matter of WTO dispute settlement continues to touch on many of the covered agreements: the six panel reports, four compliance panel reports, four Appellate Body reports and three Appellate Body compliance reports adopted over the reporting period address a wide range of provisions in several agreements. Ongoing dispute settlement proceedings also involve claims under many of these agreements, as well as a range of other covered agreements. Three of the eight panels established during the period under review concern trade remedies or subsidies. Developed and developing countries continue to participate in the WTO dispute settlement system: almost all of the Appellate Body and panel reports adopted over this period involved at least one developing country Member as a party, either as the complainant or the respondent.
Aid for Trade
A new biennium Aid-for-Trade Work Programme covering the period 2016-2017, which the General Council took note of at its meeting in February 2016, provides the framework for WTO’s Aid-for-Trade related work and activities in 2016. With its theme “Promoting Connectivity”, the Work Programme was the first action to be taken in support of the Aid-for-Trade mandate elaborated in the December 2015 Nairobi Ministerial Declaration. The Work Programme seeks to further deepen analysis of the supply-side capacity and trade-related infrastructure constraints faced by developing countries with an increased focus on services trade and upgrading infrastructure. Activities foreseen under the Work Programme will continue to support implementation of the 2030 Agenda for Sustainable Development and relevant Programmes of Action including, inter alia, the Istanbul and Vienna Programmes and the Samoa Pathway. The Work Programme lays the groundwork for the Sixth Global Review of Aid for Trade tentatively scheduled to take place in mid-2017.
While the mobilization of Aid-for-Trade funding continues, commitments fell from their historic high in 2013 by US$1 billion to reach US$54.8 billion in 2014. Aid-for-Trade disbursements, however, continued to increase in 2014 reaching US$42.7 billion, a growth of US$2.3 billion or 5.7% compared to 2013. Progress also continued in support for regional and global Aid-for-Trade approaches. In 2014 approximately US$7 billion was spent on multi-country and regional programmes, more than triple the US$2.3 billion average during the 2002-2005 baseline period.
Middle-income countries continue to be the main Aid-for-Trade recipients. Commitments to least-developed countries declined by US$4 billion in 2014 to US$14.4 billion. Disbursements to LDCs accounted for 24.6% of total Aid-for-Trade expenditure in 2014.
Since the last report, the WTO has been moving forward on trade finance and this was reflected in the Director-General’s publication “Trade Finance and SMEs”, released on 4 May 2016. The publication draws attention to the fact that globally over half of trade finance requests by SMEs are rejected, against just 7% for multinational companies. The poorer the country, the greater the challenges SMEs face in accessing trade finance. The estimated value of unmet demand for trade finance in Africa is US$120 billion (one-third of the continent’s trade finance market) and US$700 billion in developing Asia. The International Chamber of Commerce and Asian Development Bank’s estimate of the global trade finance gap is close to US$1.4 trillion. Trade financing gaps arise due to a mix of structural and development factors. In developing countries, local banks may lack the capacity, knowledge, regulatory environment, international network and/or foreign currency to supply import- and export-related finance. Other obstacles include banking or country risk issues, and cost of compliance with new prudential and other regulations.
The Director-General proposed a number of further steps in the area of trade finance. These included: first, enhancing existing trade finance facilitation programmes run by multilateral development banks. Currently, trade finance facilitation programmes support trade transaction of a total value of US$30 billion annually, mostly from SMEs. The objective would be to increase this support to US$50 billion annually. Second, reducing the knowledge gap in local banking sectors for handling trade finance instruments by training at least 5,000 professionals over the next five years. Third, maintaining an open dialogue with trade finance regulators to ensure that trade and development considerations are fully reflected in the implementation of regulations. Finally, improving monitoring of trade finance provision to identify and respond to gaps, particularly relating to any future crises.
Policy Developments in Trade in Services
In the area of services, the review period witnessed several important policy developments in such diverse sectors as distribution, financial services, telecommunications and ICT, maritime transport services, and in regard to the supply of services through the movement of natural persons. The large majority of the measures adopted during the review period move in the direction of either further liberalization of trade in services or strengthening and clarification of relevant regulatory requirements.
Policy Developments in Trade and Intellectual Property
The two decades since the WTO TRIPS Agreement entered into force have seen significant developments in the interplay between patterns of trade and trade policy, on the one hand, and the intellectual property (IP) system on the other. The ways in which international trade and the protection and enforcement of IP interact have grown and diversified in recent years.
The linkages between the IP system and the trading system are too complex and multifaceted to be categorized necessarily as facilitating or restricting trade. A balanced system for protection and enforcement of IP will facilitate legitimate trade while ensuring measures against illegitimate, infringing trade, particularly counterfeit trademark goods and pirated copyright goods. This section looks to provide a broad account of trade-related developments in IP as well as an overview of the specific trends and areas of current interest to WTO Members in this area.
This report is a mid-year preparatory contribution to the annual report by the Director-General provided for in paragraph (g) of the Trade Policies Review Mechanism (TPRM) mandate which aims to assist the TPRB in undertaking an annual overview of developments in the international trading environment that are having an impact on the multilateral trading system. The previous interim trade monitoring report presented to the TPRB covered measures taken over the period from mid-October 2014 to mid-May 2015.