Building capacity to help Africa trade better

Revitalising world trade: Issues and priorities for the Commonwealth


Revitalising world trade: Issues and priorities for the Commonwealth

Revitalising world trade: Issues and priorities for the Commonwealth
Photo credit: Simon Dawson | Bloomberg

The world economy is continuing to experience an unprecedented slowdown in international trade. The rapid expansion of global trade witnessed before the financial crisis has now almost ground to a halt.

In 2016, world trade volume expanded by only 1.9 per cent; this is compared with average growth of about 6 per cent over the almost three decades (1980-2007) prior to the crisis. This trade slowdown has affected the export performance of most Commonwealth members, with implications for their growth and development prospects.

The global slowdown is unfolding at a time when international trade is intended to play a central role in achieving the Sustainable Development Goals (SDGs), and is likely to affect the trade-related targets included in the SDGs. Rising protectionism, coupled with lack of progress in World Trade Organization (WTO)-led multilateral trade liberalisation and discontent about globalisation in many countries, makes the potential advancement of trade-related development even more challenging.

For most developing countries, and especially for small states that are among the world’s most open and trade-dependent economies, international trade is a crucial driver of growth, poverty reduction and employment. If they are to achieve the SDGs, these countries need an enabling global trading environment that supports their participation in world trade. At this crucial time, we cannot overemphasise the need to revitalise global trade flows and strengthen the multilateral trading system.

This issue of Commonwealth Trade Hot Topics highlights the impact of the global slowdown on the trade performance of Commonwealth countries. It then outlines several issues and priorities where Commonwealth members, working individually, collectively and with international partners, could contribute to rekindling world trade.

Issues and priorities for revitalising world trade

Push for strengthened trade multilateralism

Trade multilateralism remains at a crossroads. After more than 15 years of negotiations, the delays in concluding the WTO’s Doha Round have diluted confidence in the organisation’s ability to open markets and govern twenty-first century world trade in goods, services and the digital economy. Limited multilateral progress has contributed to the proliferation of bilateral and regional trade deals, including so-called ‘mega-regional’ agreements like the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the Regional Comprehensive Economic Partnership (RECP).

The deadlock in the Doha negotiations shifted attention to these mega-regionals as new fora for market-opening, rule-making and standard-setting in world trade. Some concerns were raised that they were a disruptive force with regard to the WTO-led multilateral trading system; compared with the inclusive and consensual nature of the latter regime, these regional negotiations excluded the majority of the world’s countries and people yet could affect them in various ways. The recent withdrawal of the USA from the TPP and uncertainties about TTIP post-Brexit may signal the end of this major trend in global trade governance.

Improve trade facilitation, logistics and connectivity

Improving trade facilitation and logistics at the national and regional levels can significantly reduce trade costs and boost both trade and output. Many Commonwealth members have already made important strides in simplifying customs procedures and upgrading systems to expedite the movement, release and clearance of goods. More than half of the Commonwealth members ranked on the World Bank’s Logistics Performance Index (LPI)5 improved their overall scores between 2014 and 2016. SSA countries such as Botswana, Kenya, Mozambique, Rwanda and Tanzania significantly raised their scores, with Botswana climbing from 120th place to 57th in the overall LPI ranking. Some Caribbean and Pacific SIDS regressed slightly, underlining their trade capacity challenges.

A quick win to revive world trade is to implement the WTO’s TFA, which entered into force on 22 February 2017. According to one estimate, the TFA has the potential to increase global merchandise exports by up to US$1 trillion per annum, while also reducing WTO members’ trade costs by an average of 14.3 per cent, with most of the gains to African countries and LDCs. Thus far, 34 of 48 Commonwealth WTO members have ratified the TFA. Since many Commonwealth African, Caribbean and Pacific countries are already engaged in trade facilitation negotiations at the bilateral and regional levels, in many cases the implementation of these regional deals will help anchor and achieve the WTO’s TFA.

Promote more effective regional integration

With world trade growth in the doldrums, promoting deeper and more effective regional integration may become important means for achieving SDG targets. However, the 2030 Agenda is silent on many of the potential role of regional integration in promoting inclusive growth and sustainable development. Regional integration is not only about promoting regional markets through tariff preferences. It is also a process whereby deeper and effective regional cooperation allows free movement of goods, services, investment and people to enable competitive production of exports, and participation and upgrading in regional and GVCs. Strengthened regional cooperation dealing with behind-the-border measures (e.g. technical regulations), ensuring improved connectivity (e.g. transport infrastructure) and triggering structural transformation (e.g. regional value chains) should be given the highest consideration.

Commonwealth members are all actively engaged in various regional trade initiatives. These range from sectoral agreements aimed at improving cooperation and connectivity, such as the Bangladesh-BhutanIndia-Nepal Motor Vehicles Agreement and the one-stop border posts between some SSA countries, to free trade agreements (FTAs) that liberalise goods, services and investment. The scope and coverage of the latter agreements differ widely, as reflected in recent landmark trade agreements involving Commonwealth countries: North-North trade deals (e.g. EU-Canada CETA), North-South trade arrangements (e.g. SADC-EU EPA, EU-Singapore FTA, PACER-Plus) and South-South integration schemes (e.g. CSME, PICTA, Tripartite FTA in Eastern and Southern Africa). Full and effective implementation of these agreements, coupled with investments in hard infrastructure, such as roads, energy and the physical networks required to support trade, and soft infrastructure, including institutions to facilitate and govern trade, may be prerequisites for the parties to reap the potential trade and development gains.

Leverage the ‘Commonwealth advantage’ to boost trade and investment

Although the Commonwealth is not a formal trading bloc, trade and investment links between its members are strong. Intra-Commonwealth trade in goods and services has almost tripled since 2000. The share of intra-Commonwealth trade in Commonwealth countries’ total global trade has also increased, from about 15.2 to about 18 per cent during the same period. Intra-Commonwealth trade is projected to surpass US$1 trillion over the next five years or so, and to reach close to US$2 trillion by 2030 even under a low growth scenario.

The Commonwealth provides an additional advantage to the 52 members’ existing bilateral economic relations. It has been found that, when both bilateral partners are Commonwealth members, they tend to trade 20 per cent more and generate 10 per cent more foreign direct investment inflows than otherwise. Historical ties, long-established trading relations, a familiar administrative and legal system, the use of largely one language, English, as the means of communicating with foreign partners and large and dynamic diasporas all seem to be contributing to an inherent Commonwealth factor that drives trade between members.

Brendan Vickers is Economic Adviser in the International Trade Policy Section of the Commonwealth Secretariat. Any views expressed in this article are those of the author and do not necessarily represent those of the Secretariat.

» Download: Revitalising world trade: Issues and priorities for the Commonwealth (PDF)


Email This email address is being protected from spambots. You need JavaScript enabled to view it.
Tel +27 21 880 2010