WTO warns of signs of trade fragmentation

The latest report from the World Trade Organisation (WTO) has raised concerns about signs of trade fragmentation that could potentially undo years of global growth and development. In a recent interview with CNBC Africa, WTO Chief Economist Ralph Ossa shed light on the key findings of the report and the implications for the global economy. The report highlights the need for 're-globalization' to address the growing trade policy tensions and geopolitical fragmentation that are starting to emerge. While de-globalization may not be evident in current trade data, the rise in trade policy tensions and the shift towards fragmentation along geopolitical lines is a cause for concern. Ossa pointed out that since the start of the war in Ukraine, trade flows within hypothetical blocks divided along geopolitical lines have been growing faster than trade flows between these blocks, indicating a trend towards fragmentation. The report warns that if this trend continues, it could have significant economic and strategic impacts. One scenario mentioned in the report suggests that developing countries could suffer from increasing divergence with developed countries, widening the GDP gap by 3.5%. Developing countries, which heavily rely on technology transfers through international trade, would be particularly vulnerable to the negative effects of fragmentation. Despite the potential economic costs, the report also emphasizes the importance of embracing international trade for broader reasons such as security, inclusiveness, and sustainability. Trade openness, according to Ossa, can go hand in hand with economic inclusion. While international trade has helped lift millions of people out of poverty, there is still work to be done to ensure that all regions benefit from trade opportunities. Within-country inequality remains a challenge, with some industrialized countries experiencing increased inequality due to import competition. However, Ossa highlights that there is no automatic link between trade openness and inequality, underscoring the importance of appropriate domestic policies to manage the impact of trade on inequality. The report also highlights the increasing concentration of global trade among a few economies and countries, with one-fifth of global trade being highly concentrated. This concentration poses challenges to economic security and calls for efforts to diversify international trade. Ossa believes that the WTO has a crucial role to play in addressing these challenges through rulemaking, negotiations, and efforts to bring countries on the margins of international trade into the global trading system. Initiatives like the trade facilitation agreement have already shown benefits for developing countries, and further efforts to reduce trade costs and increase participation, especially in digitally delivered services, could support economic growth and inclusion, particularly in regions like Africa. As the debate on the future of globalization continues, the key message from the WTO report is clear - embracing international trade and working towards re-globalization are essential to ensure a more secure, inclusive, and sustainable world.