Making policies work

GREAT insights Magazine

Shifts in trade development – Editorial

December 2016

Bilal, S. 2016. Shifts in trade development - Editorial. GREAT Insights Magazine, Volume 5, Issue 6. December 2016/January 2017.

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How come trade policy seems to be in such turmoil these days?

There is no doubt that trade is an important factor of economic prosperity. As such, it is recognised as an integral part of the UN 2030 Agenda for Sustainable Development, notably as a means of implementation to achieve the sustainable development goals. These are not just about developing countries, but concern all countries.

Yet, trade policy, and in particular trade agreements, are generating increasing fear and opposition among citizens and an increasing number of politicians.

The multilateral system seems to be in disarray, with an ever-lasting round of negotiations, which – bar a few exceptions – has failed to deliver any major outcome. This is once more illustrated with the recent failure of WTO members to reach a deal on the Environmental Goods Agreements, in spite of international commitments to combat climate change and promote a more sustainable planet.

No surprise in these circumstances that attention has turned to preferential trade agreements, perhaps further reducing the incentives of reaching new multilateral deals. Regionalism has been on the rise, and high-hopes were set for a new wave of mega-regional deals. But these are also increasingly called into question.

The US President-elect Donald Trump is apparently squashing such ambitions, rejecting the Trans-Pacific Partnership (TPP) and most likely also the Transatlantic Trade and Investment Partnership (TTIP). In Europe, the controversy around the TTIP and the saga on the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada not only illustrates some popular frustrations around far reaching trade deals, but also questions the ability of Europe to conclude such ambitious agreements, even with its closest partners. The prospect of trade wars seems to resurface, most recently around the controversy surrounding the market economy status of China at the WTO. Brexit, besides the uncertainty it raises regarding the nature of the future trade relations between the EU and the UK, and the implications for their partners, also reduces the credibility of regional integration in general. The EU, long held – at least outside Europe – as a model of strong and deep integration, is painfully exposing its fragility.

While trade liberalisation and integration has also captured the political headlines in many developing countries, in particular in Africa, which is not short of regional integration processes, the reality is more sobering. The rhetoric and vision on developing regional value chains and climbing up the ladder of global value chains remain encouraging, but walking the talk is much more challenging. Take the African Continental Free Trade Area. It makes economic sense on a still very fragmented market, and fits legitimate pan-African aspirations. But the process is complex, at odds with experience in other parts of the world (remember the failed attempt of the Free Trade Area of the Americas) and building on shaky ground in Africa: who would champion it, beyond the African Union institutions? Without lead countries and private sector interests pushing for it, it will not succeed, let alone respond to African citizens’ demands for economic prosperity, not grand political designs.

Here is the crux of the matter: citizens worldwide increasingly feel that they are not benefiting from globalisation, which they consider as bringing prosperity to only a happy few, mainly large multinationals, while they are left behind. Combined with an increasing mistrust toward traditional politics, more and more people feel cheated by market liberalisation, which they blame for rising inequality and job insecurity and losses. They are concerned about how globalisation can be fairer, support core universal values and contribute to better shared prosperity.

One must recognise that many of these fears are partly justified. Economists have for too long ignored the distributional impact of trade and investment liberalisation, on the ground winners’ benefits outweigh the costs to losers. Ideology has also too often dominated the debate on globalisation, on both the supporters and opponents’ camps. Populist arguments have flourished, building on emotions and resentments, drifting away from facts and reality.

So more than ever, it is important to pause, reflect on the merits and challenges of globalisation, and how to best address them. In this respect, trade policy is not an objective in itself. It is only one of the many policy tools available to achieve sustainable and shared prosperity, though an important one. It does operate in a vacuum, and should not be assigned to all types of objectives, to be achieved by trade policy alone.

There is a need to carefully reconsider trade and investment policies at all levels (multilateral, plurilateral, regional, bilateral and unilateral), in developed, emerging and poorer countries alike. And the focus should not only be on trade and investment policy-making, but also – and perhaps foremost – on implementation issues, and the nexus between trade and other policy issues and dynamics, such as innovation and equity considerations, to highlight only two.

Building on most recent analyses and knowledge, this issue of GREAT Insights brings together a number of key perspectives on how trade can contribute to sustainable prosperity, and the limits to it.

As always, we hope you will appreciate these insights and welcome your comments and contributions. We would like to wish you, our readers, a very happy 2017 and look forward to sharing more insights with you.


This article was published in GREAT Insights Volume 5, Issue 6 (December 2016/January 2017).

Economic Transformation and TradeFree Trade Area (FTA)Trade