Unilateral carbon, digital measures create trade tensions: WTO

Uncoordinated unilateral approaches to address the digital economy and the low-carbon transition can create potential distortions and trade tensions, the World Trade Organization (WTO) has said.In its World Trade Report 2024, it cautioned that fragmentation or the unwinding of trading relationships and the recourse to unilateral, rather than multilateral, policies – presents a “major risk to progress in reducing poverty and inequality and particularly affects vulnerable groups, such as low-income households, women and MSMEs”.

“Without international trade agreements, large economies might be tempted to raise tariffs unilaterally, reducing the price of their imports at the expense of their trading partners,” the WTO said in its report released Monday.

Highlighting that trade measures taken unilaterally by importing economies to raise labour standards in exporting economies have the potential to create trade tensions, it emphasised on strengthening the WTO’s deliberative and monitoring functions to ensure more inclusive trade.

It also said that low-income economies stand to benefit from improvements in investment facilitation as set out in the plurilateral Investment Facilitation for Development (IFD) Agreement, something that India has opposed as it is outside the ambit of the global trade watchdog. More than 120 WTO members have supported the China-led IFD pact.

“The WTO remains a cornerstone for international trade cooperation, and new and prospective rules in areas such as investment facilitation for development, services domestic regulation and digital trade promise to advance the re-globalization process,” said WTO Director-General Ngozi Okonjo-Iweala.Referring to the report, she added that rules for open and simplified trade are not enough to support inclusiveness between and within economies and they need to be complemented with other policies at the domestic and international levels.“Fast-growing trade in digitally- delivered services and environmental goods offer exciting opportunities, with digital trade in particular lowering the bar for enabling underrepresented economies, small businesses and women entrepreneurs to connect to international markets,” she said.

As per the report, protectionism is not an effective path to inclusiveness and restricting trade is an expensive way to protect jobs for specific groups within society which can raise production costs, while inviting costly retaliation from disgruntled trading partners.

Trade reforms, costs

As per the report, unilateral trade reforms in developing economies have, on average, boosted economic growth by 1-1.5 percentage points, potentially resulting in a 10-20% higher incomes over a decade.

Moreover, trade cost reductions between 1995 and 2020 led to a 20-35% faster income convergence of low- and middle-income economies with high-income economies.

A more promising path towards a global economy that works for everyone lies in “re-globalization” – bringing more economies and communities from the margins to the mainstream of the global economy by helping them attract more trade- oriented investment, according to the WTO.

For example, while global rules for digital trade at the WTO would create new commercial opportunities in the sector, extending the reach of those opportunities to everyone who could benefit would require action to close the digital divide, with investments in digital connectivity, infrastructure and digital skills, as well as in creating an enabling legal and regulatory environment.

Solutions could also include improving data collection, research and information exchange on the negative spillovers across economies of unilateral policies and on the uneven effects of trade policy, and enhancing the participation of vulnerable groups in trade policy decision-making processes, the Geneva-based organisation said.