Thursday, 8 August 2013 00:00
This yearâ€™s World Trade Report, which is the annual publication of the WTO, deals with the challenges in international trade that could be faced by the world in the future. The transformation of trade which is not an overnight development, although rather rapid with wider geographical participation, is said to be mainly due to the rise in international supply chain production.
One reason for this change, as the WTO notes, is the dynamism of emerging economies while the other is the development of technology as a result of globalisation. The report identifies some economic, political and social factors which together will be fundamental in shaping the future of world trade. Technology in particular led the rapid pace of globalisation. But globalisation also brings about rising inequality in incomes which could result in demand for political changes.
While the report does not foresee a reverse to globalisation, it also cautions that the gains from globalisation could be nullified or mitigated if short-term pressures are allowed to override long-term interests and if its social consequences in terms of uneven benefits are neglected. Long-term policies for education and training and short-term policies to manage these transitions are considered indispensable to future growth, stability and social harmony.
Technology has not only enabled the rapid pace of globalisation, but is also associated with increased productivity, innovation and growth. Sources of new technology are expected to shift towards emerging economies, particularly in the services sector. New technologies in the areas of information and developments in 3D printing and robotics are expected to have far-reaching impact and technology could also change much of what we take for granted today in terms of production and consumption.
Investment being a major component of international economic linkages and the rise of supply chains being linked to investment, the report notes that Foreign Direct Investment (FDI) can no longer be treated as an alternative to trade to access domestic markets. Today, most such investment projects are related to trade flows linking imports and exports. Investments are also important in spreading knowledge, technology and innovation in production along supply chains.
Developments in energy and primary products markets will also be central to our future. Even with new energy sources coming on stream, demand for energy as well as many other primary commodities is noted as likely to result in higher prices. Water scarcity would be a major issue in some parts of the world, while failure to manage the uneven distribution of natural resources across the world coupled with the scarcity of such resources will be a major problem.
Future investments are also likely to be affected by demographic factors. Demographic transition will benefit some countries while some others will be faced with ageing population and shrinking workforce. Migration, urbanisation and increasing proportion of women in the workforce will also play an influential role.
Developments in the transport sector will also affect the prospects for merchandise trade. Policy decisions of governments with regard to trade facilitation, competition and the environment will be important factors. Long term commercial relationships and international cooperation would help mitigate adverse consequences.
Services trade will continue to rise although trade in manufactured goods will be important. Trends of increased trade within certain regional agreements are less likely to persist while multilateral trade relationships across many regions have the potential to gain in importance significantly.
Trade cannot be isolated from political, social and other economic factors. All being intertwined, policy decisions cannot be taken independently of one another. Far-thinking policies could help mitigate adverse effects of challenges and benefit from the beneficial effects of challenges to world trade.
(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)