The Hindu : Uncertain times for trade

Online edition of India's National Newspaper
Monday, Nov 10, 2003

Opinion

Opinion - Editorials

Uncertain times for trade

THE PROSPECTS FOR global trade in the short term are not very bright, raising questions about the viability of an aggressive export strategy that almost all developing countries have embarked on. New estimates of world trade in 2002 and the projections for 2003, which have been prepared by the World Trade Organisation, suggest ominously that the growth in the volume of world trade that began to slow down in 2001 may not recover very soon. The WTO now confirms that the volume of global trade of both merchandise and services grew by only 3 per cent in 2002 and that it will at best expand at the same rate in 2003. This is less than half the 6.7 per cent annual rate of growth that global exports clocked during the 1990s. The current slowdown in global export growth may also suggest that the halcyon days of trade outstripping GDP growth now belong to the past. Between 1985 and 2000, world trade consistently grew faster than global GDP, giving credence to the idea that exports could drive a country's GDP. But a change in the pattern may call for a more cautious appraisal of the role of external trade in powering domestic economies.

When the WTO made its first projection of the growth of world trade in 2003 last March it did so in the shadow of the U.S.-led war on Iraq and the outbreak of the Severe Acute Respiratory Syndrome (SARS), both of which threatened to pull down the global economy and world trade. Yet more than six months after the U.S. occupied Iraq and SARS was quickly contained, the WTO has had to stick to its first estimate of world trade growing in 2003 by no more than 3 per cent. There are a couple of unusual features of the current phase of global trade growth. First, according to the WTO, trade in value terms when measured in U.S. dollars has actually increased by over 15 per cent in the first six months of 2003. But as the dollar has rapidly depreciated during much of 2003, the real growth of exports, in volume terms, by the OECD members has been negligible. The second unusual feature is that the rate of growth of exports has not been the same across all countries. China has recorded spectacular rates of expansion of exports since the second half of the 1990s even as world trade has expanded slowly. At the other end there is the European Union where the volume of exports and imports has barely grown. India was able to buck the global trend in 2002, and even if export growth has slowed down in 2003 it remains high by current global rates of expansion. In general, the developing countries are doing better than the advanced economies.

It would be, however, erroneous to assume that the developing countries can continue registering rapid rates of export growth even if the developed countries grow slowly. Export growth in the South is ultimately linked to the economic performance of the OECD countries. As the United Nations Conference on Trade and Development recently pointed out, the autonomous impact of trade on economic growth is limited. It requires faster economic growth to bring about a revival in world trade growth, rather than the other way round. In recent months, the economic outlook of the U.S. and Japan has been looking up. This is true to a lesser extent of the E.U. as well. The developing countries will be hoping that this marks a return to more rapid GDP growth in the advanced economies.

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