New approach to global trade will stem inequalities

Workers and families who are left behind by globalisation have not been abandoned by trade. FILE PHOTO | NMG 

By MUKHISA KITUYI

Summary

• UNCTAD believes that the solution is not less but better trade, fashioned by the principles of inclusivity and equity.

International trade has brought great benefits, but also inequities. By incorporating the philosophy of the SDGs into trade agreements, trade has the potential to benefit all.

The value of world trade has nearly quintupled over the past 20 years from $5 trillion to about $24 trillion. Over the same period, trade has proved to be an excellent medium to leverage and promote economic growth, helping lift a billion people around the globe out of extreme and abject poverty.

But in the last 10 years there has been a significant change in how international integration is perceived by the public and pursued in policymaking. As new middle classes have emerged in developing countries, middle-class prosperity in developed countries has found itself wavering.

After the financial crisis of 2008, and especially in the last few years, the debate around the benefits of international trade has become much more fractious.

One particularly contentious point is whether trade integration – establishing freer trade between countries – has resulted in inequitable economic growth, with some people and nations benefiting at the expense of others.

Even the simplest classroom trade models acknowledge that trade benefits accrue unevenly. Trade integration can polarise the gap between the low and high skilled, suppress wage growth for workers facing overseas competition and create hardship and displacement for those who lose their jobs.

As it happens, trade agreements are generally devised to reduce trade frictions across borders, while paying little attention to the distribution of the costs and benefits of trade within countries.

Other forces – such as financial markets, information and communications technologies, automation and movement of people – also contribute to how the benefits of globalisation are distributed.

As globalisation has expanded in recent decades, national and international policies have not kept up with the need to address these spillover effects. In fact, in many cases, states have retreated too hastily from their responsibility to regulate and redistribute.

Workers and families who are left behind by globalisation have not been abandoned by trade. Rather, they are victims of the lack of economic opportunity, social security and mobility engendered by an absence of the right set of policies. As trade integration has deepened over the past decades, the countries that maintained the smartest protections saw their populations suffer the least.

So we can see how economic globalisation, including through the expansion of free trade policies, has been changing the structure of many societies at unprecedented speed. It both creates new opportunities for some and brings dislocations for others. At the same time it raises new risks for booms and busts, intensifies the problem of greater efficiency co-existing with greater inequality, and calls for careful attention to policy.

Consequently, singling out trade as the main culprit behind globalisation’s discontents runs the risk of throwing the baby out with the bathwater, potentially cutting off the benefits of trade without addressing the full spectrum of reasons for growth in unemployment. To avoid this mistake, we need to adopt a more nuanced approach to trade.

Better trade: beyond the rules

At UNCTAD, we believe that the solution is not less trade – characterised by unilateralism and isolationism – but better trade, fashioned by the principles of inclusivity and equity.

Trade alone is not enough to reach economic and social objectives. It must be accompanied by a set of macroeconomic and sectorial policies that are inclusive and sustainable – and by social programmes designed to bring fairness to those who risk being left behind.

READ: How Kenya can improve key regional, global trade deals

This makes it even more important for governments to more thoroughly assess the implications of trade integration strategies on their citizens. They must design appropriate complementary policies to smooth the localised negative effects of economic integration while helping their constituents to benefit from it.

This calls for a more attentive assessment based on research and analysis, both in relation to national policies and international commitments.

Multilateral rule-making on trade has paid the price for this lack of strategy. The soul searching within the trade community has been intense – ranging from whether the multilateral trading system serves global development to whether it is obsolete or even unfair.

The failure to reach a meaningful outcome at the ministerial conference of the World Trade Organisation (WTO) in Buenos Aires in December 2017 indicates the difficulty of finding common ground through compromise.

This is the main reason why trade negotiations are increasingly conducted on a bilateral or, at best, a plurilateral scale.

Even within the WTO, negotiations are now advancing in a manner that will allow ‘willing countries’ to move forward on specific issues (such as e-commerce, investment facilitations, and issues related to micro, small and medium-sized enterprises) without commitments from non-participating members.

Mukhisa Kituyi is Secretary-General of UNCTAD.