EDITORS DESK

As tensions beset more countries, including our very own, questions arise on how economic progress can be sustained and truly shared.

With that, focus has been on the World Trade Organization (WTO), the global trading system in charge of ensuring compliance of its members to their binding agreements to fair trade. WTO was born in 1995 that ushered in a period of economic progress globally. WTO itself stands for trade globalization.
But with unpalatable global events unfolding, members question the relevance of this multilateral trading regime. Is WTO really the right trade formula or it is just a utopian dream?

Members are dissatisfied as to how their interests have been served or not served by the global trading regime where agreement is based on consensus of all 164 member countries.

Let’s admit it, WTO has not been effective in arbitrating trade disputes, one of its main objectives.

I should not go far. The Philippines, one of the more law-abiding WTO citizens, readily complied with its commitments, but has been given the run around by Thailand in their long-running tobacco tariff issue. The WTO already ruled several times in favor of the Philippines for Thailand to implement the decision, but to no avail.

Many countries are throwing punitive tariffs against each other, disregarding their WTO commitments.

As a result, countries are turning to bilateral or regional groupings to get a more effective trading arrangement on their own. The Philippines is also following this path.

Lately, the WTO Trade Report 2023 makes a case for “reglobalization,” short of admitting a palpable  fragmentation of its members. The report tried to make a case by showing new evidence on the benefits of broader and more inclusive economic integration.

The World Trade Report 2023, a flagship WTO publication, released last Sept. 13, features findings on how re-globalization can support security, inclusiveness, and environmental sustainability.

The report defines reglobalization as increased international cooperation and broader integration. This means integrating more people, economies and pressing issues into global trade and strengthening multilateral cooperation.

“The post-1945 international economic order was built on the idea that interdependence among nations through increased trade and economic ties would foster peace and shared prosperity. For most of the past 75 years, this idea guided policymakers, and helped lay the foundation for an unprecedented era of growth, higher living standards and poverty reduction,” said WTO Director-General Ngozi Okonjo-Iweala in her foreword to the report.  “Today this vision is under threat, as is the future of an open and predictable global economy.”

“The WTO is not perfect — far from it. But the case for strengthening the trading system is far stronger than the case for walking away from it,” DG Okonjo-Iweala said.

Starting with an analysis of the current state of globalization, the report confirms that geopolitical tensions are beginning to affect trade flows, including in ways that point towards fragmentation of trading relationships.

Despite these findings, WTO said that international trade continues to thrive with the expansion of digital services trade, environmental goods trade, and global value chains in addition to the resilience of trade to recent global crises.

The report further emphasized the need for more trade and more cooperation to effectively address the major issues that policymakers are facing the world over — from security to inclusiveness to climate change.

For instance, Chapter C of the report suggests that reglobalization can contribute more effectively than fragmentation to a more secure world. It looks at the role of international trade in maintaining peace and security. The chapter takes a broad view of security and makes three main points.

First, trade contributes to economic security by enabling risk diversification. It can also reduce conflicts, especially within a multilateral system of agreed rules. Second, fragmenting trade relationships tends to decrease economic security and increase conflict risks.

Third, reglobalization has the potential to enhance trade’s contribution to security by reducing trade barriers and facilitating diversification, aids peaceful dispute resolution and friction reduction. This is because security considerations are playing a rapidly increasing role in trade policy.
The report also defended the role of a global trading regime in reducing poverty and inequality.

Trade has proved itself to be a powerful driver of inclusiveness, fostering convergence of incomes among economies and contributing significantly to poverty reduction.

But fragmentation presents a major risk to the progress achieved in poverty and inequality reduction. While there might be some winners from a reorientation of global value chains, most developing economies stand to lose, and poorer households are likely to suffer more from rising trade costs, as they are more dependent on tradable goods and services.

The report finds that a fragmented approach to world trade would reduce global welfare, making it an ineffective solution to the world’s most pressing challenges.

So, what is the better choice - reglobalization or fragmentation?

We cannot afford fragmentation. It would come at a substantial cost, particularly for poorer countries, including more inequality and poverty. And it would make it harder, if not impossible, to cooperate on other global issues, such as climate change, and to secure the necessary technology diffusion to achieve sustainability goals.

Certainly, there are bottlenecks but I cannot also see a world without the WTO. But, what we need is a reinvigorated and reformed global trading system.