Reject protectionism but use domestic policy to spread gains from trade, says WTO chief at launch of new report

“The future of trade must be inclusive” – so said World Trade Organization (WTO) director general Ngozi Okonjo-Iweala in her introductory remarks to the World Trade Report 2024.

Speaking at this year’s WTO Public Forum, she said that, “in some rich countries, many people feel left behind by globalisation, and their frustration fuelled a political backlash against international trade – this backlash was not always deserved”.

‘Protectionism is not an effective path’

The new report, she explained “sheds light on the obstacles that have prevented individuals, firms and economies from capitalising on international trade”.

“These range from high trade costs that constrain countries’ access to foreign markets and cheap imports, to the mobility and information frictions that exist, skill mismatches and limited access to finance.”

A key message from the report, however, is that “protectionism is not an effective or cost-effective path to inclusiveness”.

“More and better trade is the path to bringing people and places from the margins to the mainstream of the global economy”.

Yet trade policy, Okonjo-Iweala suggested, is not sufficient alone to achieve that change. The report argues for what she calls “complementary domestic policies to make trade and the wider economy work for everyone”.

Integrating with policy

The report itself argues that “integrating open trade with other key policy areas is essential to spread the benefits of trade to all”.

While its authors note that “reducing trade would diminish opportunities for growth and inclusiveness”, they contend that “significant progress can be made at the national level to enhance the effectiveness of national policies for economic growth and inclusiveness” in tandem with extended free trade.

“Gains from trade are unevenly distributed among individuals within the economy.

“While trade generally brings benefits to many through more affordable goods and services and new job opportunities, some people may experience challenges due to import competition.”

Lower-income and unskilled workers, as well as small business-owners and women, can face “challenges in adjusting to the new economic conditions associated with trade openness”, the report states.

The negative effects on many workers “can last for long periods” if domestic policy fails to address the fallout of trade-related changes. The report recommends domestic changes to economic policy to address these issues, rather than tariffs or quotas.

At the same time, Okonjo-Iweala’s rejection of protectionism is echoed in the report, which suggests that restricting trade can have a host of unintended consequences, including higher prices for goods mainly consumed by poorer households.

“Trade can provide new opportunities for those who have been negatively affected by import competition, but seizing these opportunities requires adjustment. Distortions and barriers can render that adjustment difficult and costly.”

Improving LDC involvement

The world’s least-developed countries (LDCs) could benefit more fully from trade if certain “special and differential treatment provisions” are developed within the framework of WTO rules, the report argues.

Current such measures include the LDC services waiver, which allows preferential treatment for services providers in LDCs on market access and other measures. But new provisions could help those who have yet to fully benefit from international trade to do so.

There is also a need for “greater international cooperation” and support from the WTO itself on unfolding issues that could hold back LDCs, including geopolitical tension, climate change and “the digital revolution”.

“Accelerating the accession to the WTO of new members could further contribute to economic convergence.

“It is also important to extend commitments in dynamic areas and ensure effective flexibilities, while addressing impediments to low-income members’ participation in the WTO.”

Other findings

Other issues holding back world trade more broadly include the need for more predictability in the rules of trade under the WTO.

Notably, this includes “an effective and fully functioning dispute settlement mechanism, given that binding commitments significantly reduce trade policy uncertainty, which in turn increases investments and fosters growth”.

The dispute mechanism has been suspended since the US refused to nominate new judges to the Appellate Body that adjudicates on disputes.

Finally, as well as domestic reforms and coordination on economic policy across nations to manage the fallout from import competition, the report also calls for improved integration between the WTO and other international organisations.

Other international organisations “focus on complementary policies that could enable trade to support development and inclusiveness, such as investment, education, competition and taxation”, it adds.

“Greater collaboration across international organizations could be helpful in the implementation of WTO commitments, by addressing infrastructure and skill gaps and facilitating the adjustment to trade openness.”