The WTO has recently published the World Trade Figures 2002 (WTF 2002). The picture that these figures paint for growth of world trade cannot be said to be encouraging. The figures state that merchandise trade in 2002 grew by 2.5 per cent, more than making up for the 1 per cent decline in the year before. Full-year growth of output during the year was however limited to 1.5 per cent because of a slowdown in the second half of the year. The growth has been attributed to the strong demand exhibited by the United States and the relatively advanced East Asian economies. The trade figures however conceal a lot more than they reveal. While in some regions trade growth has indeed gone up in 2002 compared to the preceding year, in most cases it was still lower than during the late 1990s. During the 1990s world trade grew at an annual average of 6.7 per cent.

A WTO release itself has acknowledged that trade growth during 2002 has been uneven, and that the overall positive rate of growth has masked the sluggish performance in many regions. Forecasts for 2003 aren't that alluring either. World trade is expected to grow at barely 3 per cent during the current year. The war in Iraq and the spread of Severe Acute Respiratory Syndrome (SARS) will further jeopardize the possibility of a recovery.

Countries in Western Europe and Japan, besides Latin America, have all witnessed either stagnating or falling trade during 2002. The WTO said that 2002 has been one of the most difficult years for Latin America since the debt crisis of the 1980s, with imports falling by 7 per cent. Imports into Argentina fell by an astounding 55 per cent in a single year. In Western Europe imports shrank or stagnated in France, Germany, Spain and Switzerland while the smaller economies of Belgium, Denmark, Ireland and Finland witnessed some growth in imports. Even exports from Western Europe grew only 0.6 per cent in volume terms during 2002. In terms of the US dollar however, exports from Western Europe grew 5.5 per cent as the value of the US dollar depreciated by around 5 per cent vis--vis the Euro and other currencies of the region.

Demand stagnated in Japan as well, but an almost 25 per cent increase in imports into China during the year (China joined the WTO in late 2001), coupled with a recovery in major information technology industries in East Asian countries saw trade in developing countries of Asia rising by 12.5 per cent in 2002. Even then, the level of Asia's merchandise trade remained lower than in 2000. The growth of trade in commercial services in Asia did not fare as well as merchandise trade during 2002, with the rebound in the information technology sector during the year not being enough to offset the severe contraction in trade that took place during the year before even though the six Asian countries with high shares of electronic goods in their export baskets benefited from the recovery in the IT sector with their trade growing at 6 per cent during the year. Growth of trade and output in the Middle East also suffered owing to a reduction in oil output and rising political tension in the region.

Large variations in trade volume growth by region in 2002
(Annual percentage change)

Source: http://www.wto.org/english/news_e/pres03_e/pr337_e.htm

However, despite the failure of world trade to grow at the desired pace even as the world is seeing increasing liberalization and opening up of markets in developing countries, the WTO seems to remain obsessed with the belief that opening up further is the panacea to all ills currently plaguing the world economy. The Director-General of the WTO, Supachai Panitchpakdi, has said, "these trade figures reflect the growing economic and political uncertainty in the world today. This uncertainty is detrimental to economic growth and development and can give rise to greater instability across the globe. Governments must send a signal that they are prepared to address this problem. One very important contribution to this effort would be to accelerate work on the negotiations in the Doha Development Agenda."

Mr. Panitchpakdi refuses to acknowledge that the increasing globalisation and a reduction in the power of national governments to intervene with economic measures to reverse downtrends are primarily responsible for the sluggish growth in world trade in recent years. The WTO agreement itself is uneven and heavily loaded in favour of the developed world, and hence is bound to give rise to uneven growth in trade when implemented.

The trade recovery in 2002, compared to trade volumes in the year before, took place in the midst of a weak global economy, exchange rate fluctuations, a rise in trade-restrictive measures by several countries on some pretext or the other, and an overall dent in business confidence.

Even as WTO talks about reduced state intervention, the rise in imports into the United States, a major reason behind the positive growth in world trade during 2002, has been to a great extent the result of intervention by the US government which stepped up efforts to bring the economy back on the growth path. However the US obsession with supply-side economics has led the US government to announce tax concessions for corporate houses hoping that this would boost spending and investment by them. Stepping up government expenditure in more specific programmes targeting those who had been worst affected by the recession would have yielded far better results. The acceleration of consumer demand in the US was balanced by the slowdown in both Japan and Western Europe.

Nevertheless, the US government's attempt to revive the economy had some positive impact as is reflected by the 3 per cent rise in imports into the United States which was boosted by increased consumer spending and an increasingly expansionary fiscal stance. Public consumption in the US did expand by 3 per cent in 2002. Had the measures been more targeted, it would have done much more for the cause of revival of the US economy, as in that case a lot more of the increased demand from consumers would have been for domestic products, leading in turn to a reversal in employment downsizing, and a further boost to demand for goods through the multiplier effect.

Expansion of trade and output slows in fourth quarter 2002
(Percentage change on a quarter to quarter basis)

Source: http://www.wto.org/english/news_e/pres03_e/pr337_e.htm

As the graph above exhibits, even the improvements in trade and output during 2002 were not sustained all through the year. Improvement in trade figures occurred only till the second quarter of 2002, after which growth rates of imports and exports have fallen. World GDP growth however improved till the third quarter, but almost stagnated during the last three months of the year. Therefore, one should not read too much into the short revival of trade, or hope that the downtrend has been arrested. Such optimism would be highly misplaced with most of the economies facing stagnation hardly showing any sign of recovery.

The Argentine crisis, which has been aggravated by the inflexible and orthodox policy prescription of the IMF; the Brazilian crisis which was triggered off by panic-stricken international financiers in the face of the prospect of a left-leaning candidate winning the Presidential election in the country; the Venezuelan crisis, that has been backed by the US desperately seeking to dislodge the country's leftist president Hugo Chavez; all have the stamp of interference by the US and organizations like IMF and World Bank, which have not spared any effort to cater to the interests of international financiers thereby overlooking what would have suited the countries in need the best. And yet the World Trade Figures 2002, while stating the reasons behind sluggish growth in world trade during 2002, conveniently forgets to mention such interference which has led to stagnation, and in some cases a total collapse of the economy in these countries.

The WTF has discussed the impact the threat of terrorism has had on nations and companies as well as on international trade by means of restrictions imposed on the movement of persons and goods. It discusses not only the cost involved in the direct expenditures for security measures which governments and companies must put in place to avert terrorist strikes, but also the indirect impact on trade in the form of more cumbersome procedures and delays. But it does not discuss how the growing inequality resulting from the current economic regime breeds discontent among the increasing number of marginal classes. These sections can be easily drafted into the fold of terrorism. They would carry out acts of terrorism to vent their anger against the unjust system that breeds inequality, pauperization and impoverishment of the masses for the profit of a few, and expecting that these strikes would bring about a change in the way the society operates today.

As capital inflows fell sharply, Latin America had to cut its imports which led to a trade surplus and reduced the region's current account deficit. However, while reducing the deficit might be a long-term goal of a country, a sudden and forced reduction of the same through a drastic reduction in imports is definitely not a desired objective. Reduction in imports of necessary consumption goods, or of capital goods might in fact obstruct a country's export potential by restricting supplies of raw material and labour that go into production of the exportables.

While globalisation was supposed to boost trade between countries, developing countries, despite experiencing growth in trade volumes during the year, still find it difficult to get a share of the market of the developed world. Particularly in years when economies face a downturn, exports from developing countries to the developed world get further affected. Africa, and Sub-Saharan Africa in particular, has been one of the earliest regions which saw the countries open their economies to foreign interests. However, decades later, data available on Africa's output and trade do not indicate any significant improvement of the region with respect to incomes or participation in world trade. Average per-capita income levels have changed little and Africa's trade growth has lagged behind the global trade expansion. Although non-oil commodity prices in 2002 recovered somewhat from their depressed levels in 2001, a broad-based expansion of output and trade is yet to take place in the continent. South African exports and imports recovered by 2% to 3% from the preceding year's decline. Exports of the other non-oil exporting African countries were probably much stronger and expanded by about 6%. As the WTF points out, "a strong rebound in exports in 2002 from the preceding year's decline in a number of countries (including Morocco, Egypt, Cote d'Ivoire and Ghana) accounted for most of this strength in the export growth of non-oil exporters in Africa." However, it is estimated that only six out of 53 African countries achieved a sustained expansion of their exports over the 1999-2002 period.^[1] While imports grew rapidly in many countries of Africa, the overall merchandise import growth in the continent was held back by import contraction in Egypt and Nigeria, the second and third largest merchandise importers in Africa in 2001.

The current scenario in the world economy does not inspire much hope about a quick recovery during 2003. Although the US war in Iraq is over, the country is still far from achieving stability. Also such military aggressions are bound to pose a challenge to the very existence of global institutions. As the WTF points out, "the erosion of confidence in global institutions could encourage the creation of like-minded blocs and inward-looking policies." If the current economic regime remains in place, world trade is not likely to grow at more than 2-3 per cent during the current year, much lower than the rate at which trade expanded during the 1990s.

In order to boost production and revive world trade, instead of offering tax concessions to corporate houses, governments need to play a more active and direct role in the process of revival. Tax benefits need not necessarily lead to a boost to the economy since companies might not feel it profitable to plough back the money into the economy. The owners might decide to simply invest the money in the stock market. Or they might want to invest the available funds in labour-saving technology, putting more people out of work. This might reduce costs for the company in the short run, but without any boost to consumer demand, the size of the market is not going to grow. A rise in exports will depend on demand from abroad, and without an increase in purchasing power of people residing there, tax cuts are not going to be of much help. The state needs to create employment, thereby raising the purchasing power of the masses. This in turn would, in turn, lead to an increased in demand for goods, both from within the country and from outside. Once national economies come out of their sluggish conditions, trade both internal as well as external - is bound to grow. Leaving this task to private sector companies who always look for individual profit maximization can never have a similar impact.

May 7, 2003.

^[1] The six countries are: Equatorial Guinea, Lesotho, Mozambique, Seychelles, Sierra Leone and Tanzania.