Unusual trends in international trade statistics, such as the falling value of world trade in goods and services even as the global economy grew in 2015, give cause for concern, said an UNCTAD report released on 22 December.

Last year, 2015, was the first time since 2001 that the value of trade has fallen during a period of economic expansion, according to the report – Key Indicators and Trends in International Trade 2016 – which noted that the volume of trade still grew about 1.5%.

“In other words, while many exporters had to cope with lower prices, they saw no decline in export volumes,” the report said. “Although positive growth is consistent with the overall economic trends, there are still reasons to be concerned.”

To start with, the growth of trade volume has been below the overall growth of the world economy, something that has seldom happened in the last few decades and only during economic downturns as in 2001 and 2009, the report said.

Second, trade volumes have been rather unstable, showing substantial volatility during 2015 across quarters and across countries. Trade volumes have increased for the world as a whole, but for many countries trade volumes have in fact decreased.

“Finally, it is arguable whether the physical growth in international trade can continue in a deflationary economic environment,” the report said. “The concern is that many exporters may not be able to maintain their position in the markets for long when facing reduced financial returns.”

The sharp decline in international trade results from several factors, both nominal and structural.

Falling commodity prices and the appreciating US Dollar contributed most to the nominal fall in world trade, with oil prices going from an average of more than $100 per barrel in 2014 to about $50 per barrel in 2015. The trade weighted US dollar index appreciated by almost 15% between 2014 and 2015.

But deflationary factors can explain only some of the trade collapse in 2015. In fact, falling commodity prices explain only half of the 2015 decline in world trade.

“The sluggish growth of 2012-2014 and the magnitude of the decline in trade of goods and services in 2015 suggest a change in the dynamics behind the international integration process,” the report said.

“Indeed, the most commonly used index to gauge globalization trends – the ratio of the value of world trade over global GDP – indicate a decline in economic interdependence,” it added.

Part of the reason for this is that global value chains are shortening. Many countries, including those in East Asia, are reshoring and consolidating manufacturing production processes.

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Better access to G20 markets could boost exports from poorest countries by 15%

The world’s poorest countries are barely engaging in the global economy, but fully liberalising trade for these countries into G20 markets could boost their exports by about 15%.

While least developed countries (LDCs) account for about 12% of the world’s population, their share in global exports stands at about 1%, the Key Indicators and Trends in Trade Policy 2016 report says.

Boosting exports from LDCs could help accelerate economic growth, generate jobs, and provide financial resources for sustainable and inclusive development.

Recognising the importance of trade for LDCs, the sustainable development goals (SDGs) include Target 17.11 to “Increase significantly the exports of developing countries, in particular with a view to doubling the least developing countries’ share of global exports by 2020”.

“We’ve seen some progress in the last decade, but the participation of least developing countries in the global economy remains marginal,” said Guillermo Valles, Director of UNCTAD’s Division on International Trade in goods and services and Commodities.

“To double the LDC share of global exports – and achieve the SDG target – the trick will be not just to fix the issue of tariffs but to do the non-tariff measures too,” he said.

The report finds that LDCs generally trade much less than the size of their economies would suggest. The export-to-GDP ratios of the 48 LDCs are on average about 25%, substantially less than the average for other developing countries of about 35%.

“This indicator has been on a clear downward trend since 2011 and it shows the LDC struggle to integrate into the global economy,” Mr. Valles said.

Generally speaking, G20 countries support LDCs through a range of mechanisms to facilitate trade, such as duty-free and quota-free access. But removing all tariffs could boost LDC exports to G20 countries by about $10 billion per year.

Similarly, reducing the distortionary effects of non-tariff measures (NTMs) could boost LDC exports by about $23 billion per year. But this requires a more complex approach. NTMs such as quality standards serve public policy objectives and cannot be removed without disrupting these objectives.

Therefore, the report says, reducing the distortionary effects of NTMs comes not from removing them, but from helping LDCs to comply.

“Taken together, fully liberalising market access for LDCs and eliminating the negative trade effect of NTMs on LDCs would increase their exports by about 15%,” the report says.

The textile and apparel sectors – as well as some agricultural categories – would benefit most, it says.