WTO members show restraint in trade restrictions despite ongoing economic uncertainties

WTO members introduced fewer trade-restrictive measures from mid-October 2016 to mid-October 2017 compared to the previous year, according to the Director-General’s annual overview report on trade-related developments presented to members on 4 December.

WTO members continued to implement more trade-facilitating than trade-restrictive measures. The estimated trade coverage of the import-facilitating measures recorded in the review period was more than double the import-restricting measures. In addition, the import-facilitating measures implemented during the review period in the context of the expanded Information Technology Agreement (ITA) amounted to around US$ 385 billion.

The report points out the need for WTO members to show leadership in reiterating their commitment to open and mutually beneficial trade as a key driver of economic growth and a major engine for prosperity and to continue to work together to achieve a successful WTO Ministerial Conference in Buenos Aires later this month.

The report, which was discussed at the 4 December meeting of the WTO’s Trade Policy Review Body (TPRB), shows that 108 new trade-restrictive measures were put in place, including new or increased tariffs, customs regulations, quantitative restrictions and local content measures. This equates to an average of 9 measures per month compared to 15 in the previous period (mid-October 2015 to mid-October 2016).

During the same period, members implemented 128 measures aimed at facilitating trade. At almost 11 trade-facilitating measures per month, this remains significantly lower than the monthly average recorded in the previous annual overview report. It is noteworthy that the estimated trade coverage of import-facilitating measures (US$ 169 billion) is more than twice that of import-restrictive measures (US$ 79 billion).

There was also a slight deceleration both in initiations of trade remedy investigations and in terminations of trade remedy measures compared to the previous annual overview and to the whole of 2016. The trade coverage of trade remedy initiations and terminations recorded in the report is estimated at US$ 76 billion and US$ 12 billion, respectively.

“The economic context for this year’s report is interesting, to say the least. International trade flows have rebounded strongly during the last 12 months after a sharp slowdown in 2016. In September we upgraded our forecast for trade growth in 2017. This was due to a sharp acceleration in global trade growth in the first half of the year. The original forecast was 2.4 per cent, and we are now forecasting growth of 3.6 per cent.

“This improved outlook is very welcome, but substantial risks that threaten the world economy remain in place and could easily undermine any trade recovery. Looking ahead, we need to keep up the hard work to help facilitate trade. And of course, this includes avoiding measures which can hamper and restrict trade flows,” WTO Director-General Roberto Azevêdo said in his address to the TPRB.

“Further progress will require continued commitment. I urge members to redouble efforts to refrain from implementing new trade-restrictive measures, and to reverse existing measures,” he added. His full speech is available here.

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Key findings

• WTO members applied 108 new trade-restrictive measures during the review period from mid-October 2016 to mid-October 2017, including new or increased tariffs, customs procedures, quantitative restrictions and local content measures. This equates to an average of nine measures per month compared to fifteen in the previous period.

• WTO members also implemented 128 measures aimed at facilitating trade, including eliminated or reduced tariffs and simplified customs procedures. At almost 11 trade-facilitating measures per month, this remains significantly lower than the monthly average of 18 recorded in the previous annual overview report. WTO members continue to implement more trade-facilitating than trade-restrictive measures, a trend observed over the past four years.

• It is noteworthy that the estimated trade coverage of import-facilitating measures (US$ 169 billion) is more than two times larger than that of import-restricting measures (US$ 79 billion). In addition, the import-facilitating measures implemented during the review period in the context of the ITA Expansion Agreement are estimated at around US$ 385 billion or 2.4% of the value of world merchandise imports.

• On trade remedy measures, the review period saw a slight deceleration both in initiations of investigations and in terminations of measures, compared to the previous annual overview and to the whole of 2016. Anti-dumping measures continue to make up the bulk of all trade remedy initiations.

• Transparency and predictability in trade policy remains vital for all actors in the global economy. Collectively, WTO members must show leadership in reiterating their commitment to open and mutually beneficial trade as a key driver of economic growth and a major engine for prosperity. In preparing for the 11th WTO Ministerial Conference, members must continue to work together to achieve a successful meeting in Buenos Aires in December.

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Recent economic and trade developments

Overview

World trade growth picked up markedly in the first half of 2017 after slowing sharply in 2016. The volume of world merchandise trade as measured by the average of seasonally-adjusted exports and imports was up 4.2% in the first half of this year compared to the same period last year. Trade was also up strongly in value terms, with year-on-year increases of 9.3% for merchandise exports and 4.9% for commercial services exports in current U.S. dollar terms.

These increases represent a substantial improvement over 2016, when international trade flows declined in value terms and trade volume growth fell to its lowest level since the financial crisis. The dollar value of world merchandise exports fell 3.2% to US$16 trillion in 2016 while exports of commercial services were nearly unchanged at US$4.8 trillion. Meanwhile, merchandise trade grew just 1.3% in volume terms in 2016 (average of exports and imports), down from 2.6% in 2015.

Global economic activity also appears to be strengthening in 2017 according to consensus estimates of gross domestic product (GDP). World real GDP growth at market exchange rates looks set to expand by 2.8% in 2017, up from 2.3% in 2016 and roughly equal to the average rate of increase since 1980.

Several factors have contributed to the upturn in world trade in 2017. Asian trade flows have strengthened, partly due to stronger intra-regional trade as China and its neighbours have recovered from a period of financial volatility in early 2016, and partly due to stronger extra-regional shipments as demand has risen in the United States and remained steady in the European Union.

Prospects for imports in resource exporting regions have also brightened as commodity prices have risen year-on-year, boosting export revenues that support higher imports. South America in particular should exert less of a drag on the world economy going forward as Brazil emerges from its two-year recession.

Global economic performance has also been influenced by more fundamental changes in the structure of global demand. In particular, the rebalancing of China’s economy away from manufacturing and toward services may cause Chinese import demand to moderate, due to the fact that the import content of services is relatively low. An increasing share of services in Chinese value added (up from 43% in 2008 to 54% in October 2017) may weigh on trade growth in the short-run, but this shift should permit stronger, more sustainable growth over the longer term.

Export volumes of developed economies are up 3.1% for the year-to-date in 2017, compared to 1.4% for the whole of 2016. Shipments of developing economies have grown even more, up 5.9% in 2017 compared to 1.3% in 2016. Imports of developed economies have continued to grow at a modest pace, rising 2.1% in the first two quarters of 2017 compared to 2% in 2016, but this is expected to pick up in the second half of the year. Meanwhile, imports of developing economies are up sharply this year (6.8%) after stagnating last year (0.2%). Trade developments in current dollar terms should be interpreted with caution as they are strongly influenced by commodity prices and exchange rates. In the first half of 2017, the dollar depreciated by 2.5% on average against the currencies of U.S. trading partners, while the price of oil increased by 34%. Despite their recent rise, oil prices remain low by recent historical standards.

Trade growth was stronger than expected in the first half of the year, prompting the WTO to upgrade its trade forecast for 2017 and 2018 on 21 September. The WTO Secretariat now anticipates merchandise trade volume growth of 3.6% in 2017, set within a range of from 3.2% to 3.9%. Trade volume growth should moderate to 3.2% in 2018, set within a wider range of from 1.4% to 4.4% reflecting the higher level of uncertainty associated with longer-term forecasts. The improved outlook for trade could still be undermined by downside risks, including the possibility that protectionist rhetoric translates into trade-restrictive actions, increasing geopolitical tensions and a rising economic toll from natural disasters across several regions. On the other hand, synchronized trade expansion across regions could be self-reinforcing, leading to more positive outcomes. As a result, optimism about trade prospects should be tempered with an appropriate degree of caution.

Trade Forecast and Economic Outlook

Due to stronger than expected trade growth in the first half of 2017, the WTO issued an upward revision to its trade forecast on 21 September 2017. The volume of world merchandise trade is now forecast to grow by 3.6% in 2017. The previous estimate for 2017 was 2.4%, though this was set within a range of 1.8%-3.6%, reflecting high economic and policy uncertainty. The new estimate puts the focus on the top end of that range. Growth of 3.6% represents a substantial improvement on the lacklustre 1.3% increase in 2016. The new estimate is placed within a range of from 3.2% to 3.9%, reflecting the typical variability of previous forecasts. Trade in 2018 should grow by 3.2%, with this figure set within a wider range of from 1.4% to 4.4% to reflect the inherent uncertainty of more distant forecasts.

If the revised trade forecast estimates are realized, 2017 will be the first year since 2013 with imports of developing economies growing faster than those of developed economies. Whether this means an end to the so-called emerging market trade slowdown remains to be seen. The trade recovery in 2017 should be led by increased shipments in Asia and North America. South America and other resource rich regions may continue to see relatively weak export growth, but their imports should see stronger growth.

The ratio of world trade growth to world GDP growth, also known as the “elasticity” of world trade, has been stuck at historically low levels of 1:1 or less for the last five years. The ratio fell below 1 to 0.6 in 2016, leading to concerns about a weakening relationship between world trade and output. If the current trade forecast is realized, the elasticity should rebound to 1.3:1 in 2017, easing those concerns somewhat.

Despite the improved outlook, world trade could easily be undermined by several downside risks, including trade policy measures, tighter monetary policy in developed countries, geopolitical tensions and natural disasters. Some of these risks, although real, are difficult to quantify. As a result, risks to the forecast are predominantly on the downside. On the other hand, the fact that trade growth is now more synchronized across regions than it has been for some time could make the current expansion self-reinforcing and provide some upside potential. More positive outcomes could convince countries to limit recourse to trade-restrictive measures and engage constructively within the multilateral trading system.

This Report is submitted to the Trade Policy Review Body (TPRB) to assist in undertaking its annual overview of developments in the international trading environment that are having an impact on the multilateral trading system. It builds on the Director-General’s Report to the TPRB on trade-related developments circulated to Members on 10 July 2017.