- Since 1948,
world trade has consistently grown faster than world output.
- Trade in goods
has grown by an average 6 per cent a year in real terms, whereas world merchandise
output has increased by 3.9 per cent a year.
- In 1998, world
merchandise exports were worth over five trillion dollars ($5,235 billion). In volume
or real terms, that represents an 18-fold increase over 1948. Within that total, exports
of manufactures were 43 times larger than 50 years earlier. Over the same
period, world output grew eight-fold, and world production of manufactures ten-fold.
- Although world
population has more than doubled, reaching six billion this year, exports per capita are
eight times as high in real terms as in 1948.
- All countries
are now far more dependent on trade with one another than they were. More than a quarter
of national output of goods and services in 1998 was sold abroad, against just
8 per cent in 1950. In the United States, a continental market in its own right,
exports now account for 11.3 per cent, against 5 per cent in 1950. US regional
figures can be much higher: the share of the state of Washington in total US merchandise
exports is about three times higher than its share in US output.
- Evidence from
studies shows that economies embracing open trade and investment policies have done better
on average than more closed economies.
World trade and output,
||Average annual change
|World merchandise exports
|Billion current $
|Billion constant 1990$
|Exports per capita, 1990$
|World exports of
|Billion current $
|Billion constant 1990$
|Exports per capita, 1990$
|GDP (Billion, 1990$)
|GDP per capita (1990$)
|GDP (current $, market rate)
|Exports of goods and services,
to GDP, at constant 1987 prices
|World population (million)
WTO, with historic data from IMF, UN, World Bank and GATT
interdependence allows countries to specialize in areas where they are competitive,
providing opportunities for their working population to put their skills and talents to
the best use, and providing their consumers with the widest choice of goods and services
at the best possible prices.
aspects, however, openness and interdependence can bring a sense of discomfort.
Competition from foreign imports, and changes in export markets, demand an extra effort of
adjustment, even beyond the constant and sometimes painful adjustments needed to meet
domestic competition, technological advances and changing consumer tastes. Economic
difficulties in one part of the world can affect exports and jobs in other countries.
difficulties are far outweighed by the gains from trade, and the evidence is strong that
countries, developed and developing, that are most open to trade also benefit the most.
from exporting are obvious enough: better jobs and higher earnings, and bigger markets
that allow greater efficiency, spread costs and achieve greater profitability. No wonder
everyone wants other countries to lower their trade barriers.
But in fact,
economists agree that the greatest gains go to the country that slashes its own barriers.
Readiness to open up to foreign suppliers of consumer goods and of inputs to production
improves choice as well as competition in price and services offered. Protection that
gives special favours to one sector or another of the economy distorts the way a country
uses its productive resources. Removal or reduction of distortions allows resources to be
used more efficiently.
payments made for imports are not lost: directly or indirectly, they come back. The
additional purchasing power put in foreign pockets is used to buy other countries
goods and services, to meet debt obligations, to invest abroad, or to save.
Exports and imports: we gain
The gains are
not just economic. Trade helps to make the world a safer and better place, by reducing
poverty, and creating shared interests in stable international relations.
leads to better jobs. Because open trade encourages countries to specialize in producing
the goods and services for which they are best suited, jobs in export industries tend to
be those with the best prospects.
It is no
coincidence, for example, that the three fastest growing occupations in the United States
today are database administrators, computer engineers and system analysts all
involved in information technology, an industry in which the United States is leader in
world trade. One third of all new US jobs are export-related, and pay in those jobs
tends to be above average. For young people, trade generates some of the best job
a vital role in creating opportunities and improving economic prospects. In the United
States, for example, imports support at least 10 million jobs. Counting US
distributors of foreign products, one in four Americans has a job that is closely linked
to international trade.
provide an incentive to innovate, to improve product quality and to be more efficient.
Imports of capital goods and raw materials make industry more competitive. Imports also
help to lower inflation and increase consumer choice. They make wages go further.
Trade and the developing
developed countries have long been convinced of the gains from trade. They started cutting
their trade barriers immediately after World War II. They now have generally low levels of
import duties, and few quantitative restrictions on imports, although they have been slow
to dismantle protection and subsidies for agriculture and for some declining industries,
such as textiles and clothing, especially when these involve large numbers of workers.
developing countries and some developed countries, however, initially followed a different
path in their trade policies, and have come late to trade liberalization. They put their
faith in policies of import substitution, keeping imports to a minimum in the hope that
this would encourage the growth of their own production capacity. Much effort, in
particular, went into building up supposedly basic industries such as steel plants.
results were disappointing. The favoured industries, handicapped by national markets that
were too small and by other factors linked to their isolation, were not often successful.
The diversion of resources to them, and the frequently high cost and low quality of their
output raised the input costs of other more efficient sectors, distorted the national
economy and discouraged ventures that could otherwise have flourished. Meanwhile, they
failed to develop competitive export industries, and continued to rely on selling raw
materials which faced shrinking markets and declining prices in developed countries.
In the late
1970s and 1980s an increasing number of these developing countries changed course. They
adopted more market-oriented policies, reducing trade barriers, setting realistic exchange
rates and often also welcoming foreign direct investment as a source of both finance and
know-how. The results were striking. During the period 197089, 15 developing
countries that had already made such changes before 1970 achieved per capita growth
rates averaging almost 4.5 per cent a year, nearly double the rate achieved by the
developed countries of OECD. Seventy-four countries that kept to the old policies for some
or all of the period averaged annual growth of less than 1 per cent.
Some of the
successful countries hit trouble in 199798, following the financial crisis in Asia.
Three of them Indonesia, Malaysia and Thailand had been star performers,
whose economies, export structure and per capita incomes had been transformed, with
soaring exports of manufactures that greatly reduced their previous dependence on
much the poorest of the three, the proportion of the population living in extreme poverty
fell over 25 years from 70 per cent to 10 per cent. The share of
undernourished people decreased from 26 per cent in 197981 to 6 per
cent in 199597.
countries, along with others such as Rep of Korea, have been hard hit, not least with
a serious human crisis. They would have been in still greater trouble if their trading
partners had not kept markets (particularly the booming US market) open to their exports.
And they are recovering.
worlds 25 largest trading countries, a third are now developing countries.
Taken together, developing countries now account for about a quarter of world trade,
compared with a fifth just 12 years ago. Their share of trade in manufactures has
doubled, to 20 per cent. Two of them, Mexico and Rep of Korea, are now even members
of the developed-country organization, the OECD.
importantly, trade has been a crucial element in doubling the incomes of 1.5 billion
people in 10 developing countries over the past 25 years. But there is a long
way still to go. Three billion people live on less than $2 a day.
of all is the position of the worlds 48 poorest nations, the countries
classified by the United Nations as least developed. With 10.5 per cent of the
worlds population, they account for one-half of 1 per cent of world trade, and
this tiny share is still shrinking.
Many of these
countries are saddled with enormous debts, lack infrastructure and are starved of
investment. Most of their citizens still live on subsistence agriculture. The failure to
begin liberalizing world trade in agriculture at an earlier stage gravely handicapped the
ability of many of these countries to expand their exports.
contrast to the developed world, and to the experience of the most successful developing
countries, the already low incomes in many least-developed countries, especially in
sub-Saharan Africa, have fallen substantially over the past 20 years.
shocking enough in terms of present living standards, this trend is also ominous for the
future: an informal rule of thumb (cited by the World Bank) tells us that rapid reduction
in poverty demands annual growth in per capita income of at least 3 per cent.
situation of these countries is a reproach and challenge to the rest of the world. Given
the proven effectiveness of trade in accelerating the growth of national and personal
incomes, the challenge is one to which the world trading community in particular must, and
indeed could easily, respond.
above, the exports of the least-developed countries account for 0.5 per cent of world
trade hardly a magnitude that would cause significant impact were these exports to
be accorded free access to the worlds markets.
foreign markets is important for all countries, including the least-developed, but other
factors can sometimes be even more important. We should not lose sight of this. Human and
physical capital formation, capacity-building, infrastructure development, sound
macroeconomic policy and good governance all play a vital role.
Globalization: challenge or
The growth in
world trade, and in our dependence on it, is part of the phenomenon of globalization: the
increasing integration of the world economy.
aspect of globalization is the huge increase in world investment flows. Much of this
investment is directly trade-related: it goes into export industries, or into
infrastructure that helps trade. In 1998, foreign direct investment (FDI) reached
$650 billion, seven times its level in real terms in the 1970s, and although
1998 was, so far, the peak year, flows are still running high. More than half of the
total is going to developing countries, and is helping to build up their productive
capacity and competitiveness.
largest flows are going to developed countries, and to big developing countries such as
China and Brazil, the far smaller amounts of FDI going to some other developing countries,
such as Bolivia, Ghana, Lesotho and Peru, actually represent a bigger proportionate boost
to their national output than FDI flows to OECD countries.
contributor to globalization is the spread of technology and improved communications,
typified by soaring growth of the Internet and mobile telephony. Another is the huge
expansion of air transport services, and the resulting movement of people between
countries. All these developments are forcing the pace of economic and social change
President Clinton told WTO ministers in Geneva last year, is not a policy choice
it is a fact.
welcomes that fact. Many feel insecure and worried in the face of such changes. They see
the benefits of economic growth spread very unevenly, both between and within countries.
fifth of the worlds people have 74 times the share in world income of the
poorest fifth. Even in many wealthy countries, while the incomes of those in managerial
and professional jobs have risen sharply, those of ordinary working people have increased
much less, or not at all. The gains from globalization are not obvious when your job is at
risk; still less, if you are actually unemployed.
Director-General Mike Moore puts it, increasing numbers of people feel excluded,
forgotten and angry, locked out and waiting for a promised train that may never arrive.
They see globalization as a threat, the enemy, the reason for all their woes. A central
policy challenge for governments is to make the prosperity that flows from globalization
accessible to people.
Part of that
challenge, he warns, is international: Governments must act cooperatively in the
trade, investment and financial spheres to secure maximum benefits from international
specialization, while at the same time leaving the necessary space to address the fallout
from change that affects particular groups.
In the sphere
of trade, that cooperation will inevitably centre on what governments can agree in Seattle
to do together in the coming years as participants in the multilateral trading system, the
system embodied in the World Trade Organization.
How the WTO fits in
Trade Organization (WTO) is still very young. Born on 1 January 1995, it is not yet
five years old.
But the WTO
is the direct result of a half century of international cooperation that has led to
successive agreements, each building on what went before, and each freely entered into by
all its member governments.
WTO has 135 member governments. Their countries, with a combined population of about
4 billion 66 per cent of the world total account for over
90 per cent of world trade.
30 more countries, whose populations together account for a further 30 per cent
of the world total, are knocking at the door: when they join, virtually all of world trade
and all but 4 per cent of the worlds peoples will be within the multilateral
of the GATT/WTO lie in the experience of the 1930s, and in the enlightened response of
statesmen to that experience at the end of World War II.
1930s, in the economic and social disaster of the Great Depression, countries turned
inwards, and provoked a descending spiral of declining output and trade. In trade policy,
they resorted to extreme protectionism, raising tariffs and other trade barriers to levels
that choked off imports, and setting up discriminatory arrangements that favoured some
countries and excluded others.
war, which the misery and dislocation of the Great Depression had helped to bring about,
it was clear that a secure political future could not be built without establishing
greater economic security too.
Part of the
effort to find better instruments of international economic cooperation bore fruit at the
Bretton Woods conference of 1944, with the International Monetary Fund and World Bank. For
trade, the search took longer. A fully-developed answer was found only with the birth of
the WTO. But much was achieved quite quickly, on the basis of two key insights.
insight was that, in trade policy, the road to economic recovery and growth lay in
progress towards open markets and liberalized trade.
was that trade would not grow unless traders themselves could count on a degree of
stability and predictability in the system, and that the best way of achieving this was to
develop a mutually agreed system of rules, binding on all members and enforceable through
dispute settlement. Central among these rules, and holding the system together, should be
the rule of non-discrimination, to prevent the exclusionary deals and preferential blocs
that had poisoned international relations in the 1930s, and had at the same time reduced
trades efficiency in fostering economic growth.
these insights have shaped the multilateral trading system, and been fundamental to its
success. The fact that the number of countries that have chosen to be members of the
system has risen from 23 in 1948 to 135 today, and that 32 more
countries including China and the Russian Federation want to join, shows that governments
see no alternative approach to their trade relations that could serve them anything like
1948 to 1994, the multilateral trading system took the form of the GATT the
General Agreement on Tariffs and Trade.
The GATT was
in some ways an unsatisfactory instrument, a provisional and makeshift arrangement pressed
into service because the International Trade Organization, the permanent organization that
was meant to be the trade counterpart to the IMF and World Bank, was stillborn. Its
arrangements for settling disputes were ineffective if governments chose to disregard
them, and its coverage did not go beyond trade in goods. Nevertheless, much was achieved.
negotiating rounds under the GATT, each involving more countries than the
last, resulted in dramatic reductions in tariffs on industrial goods. Average import
duties among industrialized countries were cut progressively from high double-digit levels
to less than 4 per cent.
non-tariff border restrictions were abandoned. The trade rules included in the original
GATT agreement of 1947 were developed and elaborated in the light of experience, so
that market-access gains achieved through tariff cuts could not be cancelled out by trade
barriers and distortions introduced by subsidies, discriminatory technical standards and
unreasonable regulations and procedures.
also setbacks, especially in the 1960s and 1970s. Proliferation of bilateral measures to
block developing-country exports of textiles and clothing was halted only at the cost of
accepting a multilateral arrangement that gave existing restrictions legitimacy.
grey area restrictions, not permitted by any GATT rules, affected trade in
products of other industries under competitive pressure, including iron and steel,
automobiles and consumer electronics. Efforts to open up trade in agriculture were largely
unsuccessful. Agreements reached to allow positive discrimination (special and
differential treatment ) in favour of developing countries had only limited effects.
By far the
largest, longest and most productive round of GATT negotiations was the eighth, the
Uruguay Round of 198694.
respects the Uruguay Round was just more though much more, particularly because
this time developing countries joined in fully of the same efforts made in earlier
rounds. Tariffs on industrialized products were reduced; defences against non-tariff
barriers were strengthened.
Uruguay Round also reversed earlier failures. Member governments agreed to phase out
restrictions on textiles and clothing and to ban grey-area measures. They made
a start on a long-term effort to reform trade in agricultural products.
members negotiated a brand new set of rules, together with initial market-opening
measures, for trade in services, a dynamic area of world trade they had previously left
untouched. Another new agreement set out agreed rules on minimum protection to be given to
intellectual property through patents, copyright and measures against counterfeiting.
package of trade liberalization and rules was firmly tied together by putting it under the
responsibility of the new World Trade Organization. In many ways, the WTO resembled the
old GATT, particularly in its rule of working by consensus agreement among the member
governments, none of whom could be bound by new obligations without their full consent.
GATT, however, it was placed on a firm legal footing, and equipped with more effective
arrangements for settling disputes.
entry into force of the WTO in January 1995, the multilateral trading system at last had
adequate institutional arrangements, and a comprehensive set of agreed rules. In creating
the WTO, its member governments had secured a more solid basis for their joint efforts to
support world trade as an instrument for growth, better jobs, development and more
harmonious international relations.
< PREVIOUS BACK TO TOP NEXT >