International trade contributes to economic growth and development, not just through flows of goods and services, but also in connecting different people and cultures. Yet, as the world faces multiple and interrelated global challenges, international trade is often heavily attributed. As the recently concluded Twelfth Ministerial Conference of the World Trade Organization (WTO) exemplified, international trade, and the trade policy processes that shape it, need an urgent upgrade towards actively supporting, rather than blocking or being neutral to, inclusive and sustainable development outcomes.
International trade surrounds us, having a major impact on our daily lives through the goods and services we consume, our jobs, and innovations. When there are large disruptions in global supply chains, like during the Covid-19 pandemic, or when a trade war escalates, such as between China and the USA, we feel the ripple effects. The invasion of Ukraine by Russia, both important global exporters, resulted in a downgrading of expected growth of merchandise trade volume by the WTO from 4.7% to 3% in 2022. Global crises clearly affect global trade, and in turn, global trade can worsen global crises. Global trade rules are therefore critical in tackling global challenges, but all too often multilateral negotiations reach a standstill or end in weakened or disappointing outcomes
Why are comprehensive deals on trade so difficult?
Trade deals now involve a complex balance between opening up trade, protecting the environment and climate, whilst also creating better opportunities, especially for the poorest and most marginalised communities globally. There are often conflicts and serious trade-offs between these three objectives. Importantly, these trade-offs can be very different for each country, creating differences in interests in negotiations, often driven by power asymmetries.
The technical discussions that shape the international trade system take place at WTO negotiations. Significant progress at this multilateral level has been with challenges in achieving consensus on major issues, turning many countries to bilateral and regional trade agreements. The recently concluded Twelfth Ministerial Conference put important issues on the agenda– including action on overfishing, a waiver on Covid-19 vaccines, extension of the E-commerce moratorium, among others, laying foundations for the future direction of the international trading system. However, the outcome has also left much to be desired, and much to be done to create a more inclusive and sustainable global trading system in the coming years.
Global trade and global crises
International trade and trade policy do not always, and not automatically, have positive developmental outcomes for all. Trade creates winners and losers. It can increase wage inequality between industries and regions that expand from trade compared with those that contract; between those with different levels of skills; and between firms of different sizes. This is because higher-skilled (and often better-off) workers can compete to secure new jobs from trade, and larger firms are often better equipped to maintain competitiveness as markets liberalize, capturing most opportunities created by increased trade.
Research shows that there is a mixed record of the contributions of global trade for poverty reduction. For example, not everyone is in the position to benefit from trade-induced price changes. Heavy consumers of exportable goods may lose if export markets drive up prices. Wages and employment opportunities in import-competing sectors could also decline in the face of international competition, causing issues if jobs lost in import-competing sectors are smaller than those gained in exporting sectors. Furthermore, imperfect labour mobility can erode job-generating potential, as workers may struggle to transition from contracting to expanding sectors due to geographic barriers and/or a lack of relevant skills.
Importantly, studies have found prolonged impacts of international trade on marginalised groups such as women and youth workers, minorities, indigenous groups and people with disabilities. The poor and marginalised are often less equipped to cope with rising prices and loss of jobs in import-competing sectors. A bias towards formal firms in global value-chains can exclude poorer and informal workers from opportunities. Female-led firms may struggle to integrate into global value-chains due to weak access to productive resources and networks. Where women can access employment opportunities, these positions are often low-skilled work with limited employment mobility. Additionally, poor working conditions can emerge in response to competition pressures. As such, negative impacts on the marginalised and vulnerable often compromise on their human rights.
International trade also impacts food security, and can exacerbate environmental damage, biodiversity loss, and climate change. The expansion of global trade has helped to move food from where it is produced to where it is needed, with around 80% of the world’s population fed in part by food imports today. This exposes countries to volatile global food prices, often disadvantaging consumers of imported goods and producers of exported goods. The former can be seen unfolding now, with effects across the Horn of Africa, as the Ukraine war is leading to shortages of wheat and price increases in several staples. This exemplifies how the global nature of supply-chains today means that efficient circulation of food is critically important.
Global trade for greater inclusion
Accounting for the factors discussed above, it can be argued that the recent trend of aligning international development strategies with trade policy is a way forward. This is what the UK government has recently announced, in line with countries such as the Netherlands, Japan, and Germany. However, it is also a delicate line. Depending on the policies, trade can exacerbate exclusionary development outcomes, or facilitate more inclusive development outcomes. When development aid is aligned tightly to trade relations with the donor country as a form of enlightened self-interest, rather than as a tool for good development policy, it has implications in the choices countries make on trade, and on the effectiveness of trade for inclusive development outcomes.
Positive and transformational work on trade and development requires a more nuanced and complex vision on the terms of international trade, trade policy and trade relations. Approaches for inclusive trade that also tackle our escalating global crises desperately need to be explored and implemented in multilateral policy arena. The vital question remains: how can countries unlock the benefits of trade while minimising environmental costs and regressive distributional effects?
A way forward for more inclusive trade policy
In our work contributing to understanding and operationalising inclusive trade, we set out some of the key dimensions and policy and investment approaches needed to ensure that international trade can contribute to tackling, rather than worsening our multiple global challenges.
- Conduct ex-ante trade policy analysis: This means determining the anticipated distributional effects of trade and trade-related policies to identify complementary policies and investments that seek to balance the distribution of costs and benefits.
- Encourage the reallocation of physical capital, labour and knowledge between sectors: countries that better reallocate factors of production can maximize the benefits of trade and limit transition costs associated with the decline of one industry and rise of another.
- Ensure responsiveness to and contribution from industry: government responsiveness to domestic industry concerns is critically important to deepen understanding of business dynamics and pain-points, and to identify necessary policies to address these. Strategies such as responsible business conduct (RBC) also ensure businesses are mindful of sustainable and inclusive goals.
- Facilitate civil society participation: securing broad-based, meaningful participation in policy-making can strengthen critical assessments of the distributional effects of trade and secure buy-in for trade policy decisions.
- Cultivate greater regional and international collaboration: trade institutions like the WTO provide a forum for countries to collectively develop conditions, mandates and international standards targeted at resolving some of the sustainability issues associated with trade.
- Guarantee transparency: a transparent policy design and implementation process for trade policy can maintain credibility and secure buy-in for trade decisions.
This blog is part of our blog series ‘Voices on Inclusive Trade’. Other blogs in this series:
- Pathway to UK-India Free Trade Agreement: call for focused advocacy
- The future of UK-India trade and development – part one
- The future of UK-India trade and development – part two
- Trade, human rights and EU-India negotiations
- Can the RCEP strengthen global cooperation for trade, investment and sustainable development?
- Two developments for South-South trade and investments post Covid-19
- A new WTO chief creates opportunity to realise a globally inclusive trading system
- Amid shifting global trade dependencies, can the South provide greater certainty?
- Designing for Impact: South-South Trade and Investment
- Reflections on South-South co-operation on trade and investment ahead of BAPA40
For more on inclusive trade and development, Watch our Inclusive Trade event series.
