Links between trade and economic growth
12. In the past sixty years the growth in the
volume of world trade in goods and services has typically exceeded
the growth of GDP, often substantially. For example, from 1997
to 2007 global GDP grew by around 3% and trade in goods by around
6%. Growth fluctuations can have sharp impacts on trade. The fall
in the global output growth rate from 3.7% in 2006 to 3.4% in
2007 is associated with a fall in world export growth from 8.5%
to 6.0%. A period of negative output growth is therefore likely
to lead to a fall in trade volumes.
FIGURE 1
Formal and informal country groupings
at the World Trade Organisation
13. Multilateral rounds of negotiations on trade
liberalisation are typically very complex and attempts to assess
their overall effects require simplifying assumptions. This inability
to capture the full complexity of multilateral liberalisation
has led to different researchers producing varying estimates of
impact. Estimates of the overall effects of the Uruguay Round
of trade negotiations suggested increases in world output of between
half and one per cent.[10]
World Bank economists have tried to summarise the proposals on
the table in Geneva in July 2008 and give an estimate of the potential
impact.[11] While they
attempt no overall summary, their analysis suggested that the
cumulative effect of the Doha Round texts would be to deliver
real, if modest, cuts in applied tariffs and more substantial
cuts in bound tariffs with the biggest effects falling on agriculture;
that there would be modest liberalisation of existing WTO commitments
in services but that these will not make a substantial difference
to the reduction in applied barriers to trade; and that the abolition
of agricultural product export subsidies and the cuts in trade
distorting support on the table offered real gains for developing
countries notably in sugar, peanuts and cotton.
14. We asked witnesses about the broader impacts
of trade on balanced economic development. The British affiliate
of the International Chamber of Commerce argued that the multilateral
trading system had been a major driving force for growth, job
creation and consumer choice (p 1). Professor Lehmann
described international trade as "fundamental to the general
objective of making this world a more equitable and wealthier
place" (Q 482). Professor Richard Higgott, Professor of
International Political Economy, University of Warwick, added
that countries which had export-focused industries had grown fastest
in the past fifty years (Q 60). Ms Andra Koke, Head of Unit,
Trade and Development Unit, DG Trade, European Commission, added
that while multilateral liberalisation was more important, measures
that the EU has taken unilaterally and bilaterally have also helped
developing countries (Q 153). In evidence given in his role
as European Commissioner for Trade, Lord Mandelson told us he
was keen to pursue further trade liberalisation, but that he had
encountered resistance from emerging economies which feared that
liberalisation would harm their growth (Q 244).
15. This resistance can also be found in developed
countries. We were concerned to hear from Professor Lehmann
of a poll reporting that a majority of Americans see trade as
a threat rather than an opportunity (Q 459).[12]
He argued that this swing in opinion compared to previous trade
Rounds was due to several factors: NGOs (which generally oppose
liberalisation) being able to spread their message quickly online;
trade talks (and technical terms such as NAMA[13])
not being explained to the public; and that there was no champion
for liberalisation—"the PR has been terrible"
(Q 472). However, Ambassador Don Stephenson, Chair of the
WTO Negotiating Group on Market Access, told us that the view
of NGOs had evolved; they had stopped opposing trade liberalisation
and instead were contending that the manner of the liberalisation
was wrong (Q 499).
16. Mr Pascal Lamy, Director-General, WTO,
described the WTO as an "insurance policy" against protectionist
surges (Q 416). Mr de Jonquières agreed, arguing
that the fear of recession would encourage governments to liberalise
and oppose producer lobbies who opposed the removal of tariffs
(Q 3). Mr John Cooke, International Financial Services
London (IFSL), also expressed hopes for services liberalisation
outside the Round: he predicted continuing unilateral liberalisation
of trade in services (Q 297). He feared a protectionist reaction
in the services sector if agricultural liberalisation was not
forthcoming (Q 337).
17. We have not heard anything in this inquiry
to change the conclusion of our 2004 inquiry on trade policy:
we recommend that the Government continues to pursue further trade
liberalisation through the EU as an important policy objective.
This should be fully consistent with the EU's development objectives,
including the reduction of poverty in developing countries. The
continued removal of trade barriers will lead to greater economic
growth and jobs around the world. This growth is shared between
developed and developing countries alike. A global recession will
be made worse if there is a retreat into protectionism. Our
stance is summarised in the words of Mr Syed Kamall MEP:
"It is not countries that trade with each other, it is people
in businesses in other countries to mutual benefit. We can either
get in the way or we can facilitate that. I think the best way
we can facilitate that is to get out of the way" (Q 238).
The effects of commodity price
volatility on attitudes towards liberalisation
18. There was significant volatility in commodity
prices while we were taking evidence. We expected to find that
the volatility might affect attitudes to trade. Despite fearing
the worst most witnesses did not anticipate any impact upon tariffs.
Mr Edwin Laurent, Commonwealth Secretariat, quoted UNCTAD
in stating that he did not expect the higher prices to be a long-term
phenomenon (Q 105), and Ambassador Bruce Gosper, Chair of
the WTO General Council, emphasised the long-term downward trend
in food prices (Q 384).
19. Professor Alan Winters, Professor of
Economics, University of Sussex, was disappointed that some European
countries had called for further protectionist measures (Q 29);
Ambassador Gosper, Chair of the WTO General Council, feared that
some countries might take a short-term view and introduce damaging
protectionist measures (Q 386). Mr Trineesh Biswas,
Adviser, ICTSD, aptly described this as "panicky policy making"
(Q 449). Dr Michael Gasiorek, Senior Lecturer, University
of Sussex, and Mr Fredrik Erixon, Director of the ECIPE think
tank, were confident that the increased protectionist rhetoric
would not be manifested in action, as increasing levels of trade
and the nature of global supply chains meant that governments
were aware that increasing tariffs could be counter-productive
(QQ 30, 283).
20. Commission officials were not as confident
that calls for protectionism would not develop into action: Mr Paolo
Garzotti, Deputy Head of Unit, Chief Economist Unit, DG Trade,
European Commission, said that liberalisation was "not a
one-way street" and suggested that securing a trade agreement
now would be key to safeguarding existing levels of liberalisation
(Q 141). Mr Gareth Thomas MP, Under-Secretary of
State for Trade and Consumer Affairs, noted that liberalisation
might create a slight rise in food prices in the short term[14]
but told us that the Government's view was that the abolition
of significant levels of agricultural subsidy would boost investment
in agriculture and thus increase productivity (Q 581).
21. The impact of commodity price volatility
during 2008 on EU trade policy was limited to protectionist rhetoric
rather than actions. We hope that EU Member States do not use
the current economic environment as an excuse to delay or even
roll back reforms of the Common Agricultural Policy.[15]
We ask the Government to work with EU partners to ensure that
trade liberalisation contributes to improving food security in
developing countries.
9 The UN publishes the Human Development Index each
year, which ranks countries on measures of GDP per head, life
expectancy, literacy levels and educational attainment. In the
most recent Index, Brazil has moved into the "high development"
group of countries although many witnesses still consider the
country to be developing. Back
10
Roberta Piermartini and Robert Teh, Demystifying Modelling
Methods for Trade Policy WTO Discussion Paper 10, 2007. Back
11
Will Martin and Aaditya Mattoo, The Doha Development Agenda:
What's on the Table, World Bank Policy Discussion 4672 Back
12
The poll was published by CNN on 1 July 2008 and found that 51%
of American citizens view foreign trade as a threat to the economy,
and that 40% believed trade presented an opportunity for economic
growth. http://edition.cnn.com/2008/POLITICS/07/01/cnn.poll/index.html Back
13
Non-Agricultural Market Access (NAMA) refers to all products that
are not covered by the negotiations on services or agriculture. Back
14
Protectionist policies aim to raise prices for domestic producers
and consumers. This leads to a fall in consumption, an increase
in domestic production, and a decrease in imports and/or an increase
in exports. The result is to shrink demand and/or increase supply
on world markets and hence decrease prices on world markets. Liberalisation
will have the opposite effect and hence tends to raise prices
on world markets. The lower levels of world trade are relative
to world production and consumption, the greater the potential
impact of changes in the level of protection by large producers/consumers
of agricultural products is likely to have on world market prices.
Agricultural exports represented 8.3% of total world exports in
2007 (WTO World Trade Statistics 2008 Table II.2). Back
15
We have recently discussed the Common Agricultural Policy: European
Union Committee, 7th Report (2007-08): The Future of the Common
Agricultural Policy (HL 54). Back
