How to make trade more inclusive? WTO has a suggestion

Trade has been a facilitator in narrowing the income gap between economies since the World Trade Organization (WTO) was set up about three decade ago, the global body said in a report.

From 1996 to 2021, countries with higher trade shares in GDP saw faster economic growth, helping low- and middle-income nations catch up with high-income ones, according to the WTO’s World Trade Report.

“Perhaps the biggest takeaway from the report is its reaffirmation of trade’s transformative role in reducing poverty and creating shared prosperity — contrary to the currently fashionable notion that trade, and institutions like the WTO, have not been good for poverty or for poor countries, and are creating a more unequal world,” WTO Director-General Ngozi Okonjo-Iweala said in the foreword to the report.

“But the second biggest takeaway is that there is much more we can do to make trade and the WTO work better for economies and people left behind during the past 30 years of globalization,” DG Okonjo-Iweala said.

Moreover, membership in the WTO and its predecessor, the General Agreement on Tariffs and Trade (GATT), has boosted trade between members by almost two-and-a-half times, while economies that undergo rigorous WTO accession negotiations are shown to grow 1.5 percentage points faster during their accession period, it added.

Lower trade costs from 1995 to 2020 helped low- and middle-income countries catch up with richer nations by 20-35%, the report said.

The report found little connection between trade openness and income inequality within countries, despite common belief. While income inequality is still high, it isn’t closely tied to trade or import competition.

The report also noted that countries with weak trade and high reliance on commodities have struggled to keep up. Between 1996 and 2021, 13% of the world’s population, mostly in Africa, Latin America, and the Middle East, lived in low- and middle-income countries that grew slower than rich countries.

Low- and middle-income countries that fell behind in growth generally trade less, get less foreign investment, rely more on commodities, export simpler products, and trade with fewer countries, it added.

“Less trade will not promote inclusiveness, nor will trade alone,” WTO chief economist Ralph Ossa said. “True inclusiveness demands a comprehensive strategy — one that integrates open trade with supportive domestic policies and robust international cooperation.”