1. QNB Economics
economics@qnb.com.qa
January 26, 2014
Weekly Commentary
WTO Must Harness Innovation for Global Growth
The recent trade agreement reached by the
World Trade Organization (WTO) has the
potential to raise long-term global GDP growth.
However, the agreement does not cover many of
the areas that have been under negotiation since
the Doha Round was launched in 2001.
Extending the recent agreement to these areas
would reap substantial dividends for global
growth in the future. In particular, more could be
done to leverage the positive impact of recent
innovations in communications technology on
global trade.
In early December 2013, the 159 member
countries of the WTO reached their first ever
agreement since the founding of the institution
in 1995. The most important part of the so-called
“Bali Package,” named after the Indonesian
island where the deal was brokered, relates to
trade facilitation. This legally binds members to
simplified customs procedures, which should
reduce costs and increase speed and efficiency of
customs clearance. The deal also includes
agreement on difficult issues, such as how the
WTO handles food security programs and better
access to advanced-world economies for the
least-developed economies.
World trade liberalization is essential for
economic development as it increases the flows
of goods, services and capital. This reduces
inefficiencies and exploits country-specific
comparative advantages, thereby raising
economic growth. The OECD has estimated that
the recent agreement could lower the cost of
trade by 10%-15% and eventually add between
USD400bn and USD1trn to global GDP each
year. The deal should raise trade flows, increase
revenue collection, create more stable business
environments
investment.
and
attract
greater
foreign
Nonetheless, the Bali Package only partially
completes the Doha Round launched in 2001,
which aimed to lower trade barriers and revise
trade rules. The agenda for the Doha Round
tackled a broad range of issues including:
agricultural subsidies; investment across
borders; debt in developing economies; trade in
services; intellectual property; and trade in IT
products. Further agreements in these, and other
areas, could reap enormous dividends for world
growth in the future.
Historical World GDP Growth (1AD-2008)*
(compound annual growth**, %)
5
Industrial Revolutions vastly
reduce cost of trade
4
3
2
1
0
1-1000
1100 1200 1300 1400 1500 1600 1700 1800 1900 2000
-1
Sources: World Economics and QNB Group analysis
* North American and “Western” GDP growth
** CAGR for each 10-year period given after 1820
Global trade flows have underpinned rapid
economic development in recent centuries. GDP
growth was 0.2% from 1AD to 1820AD,
according to World Economics. In the mid-1800s,
new technological innovations in transport
(steamships, railroads and canals) and
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2. Weekly Commentary
communications (telegraph) greatly reduced
transportation costs and led to a rapid increase
in global trade. As a result, global GDP has
grown at a compound annual rate of 3.6% since
1820. Further technological innovations have
continued this process of global integration and
greater trade. In the 1980s, global trade only
accounted for 19% of world GDP; between 2004
and 2013 it averaged 30% of GDP.
The benefits of greater trade for economic
development are clear. The rise of China and
India as global economic powers in recent
decades has been largely driven by their
integration into the global economy through
trade, lifting around one billion people out of
poverty over the last 30 years.
Overall, it is clear that global trade agreements
have enormous potential for higher economic
growth. Furthermore, the latest innovations in
communications technology create huge
opportunity for growth in non-merchandise
trade, such as trade in services, IT products and
intellectual
property.
Innovations
in
communications
also
make
it
more
straightforward to transfer financial capital
around the world. An easing of restrictions in
this area would further enhance global
integration and trade. To fully harness the
enormous potential of new technological
innovation and keep pace with its advances, the
WTO should accelerate the rate at which it
makes agreements to more than once every 18
years.
QNB Economics
economics@qnb.com.qa
January 26, 2014