New economic modelling shows developing economies would see significant long-term trade reductions without the safety-net of the World Trade Organization (WTO).
Key findings:
- A 33% drop in developing countries’ merchandise trade relative to a baseline scenario with the multilateral system still in place
- A permanent GDP loss to developing countries of over 5% – driven in part by a 5% decline in foreign direct investment flows
- Acute export losses of 43% in low-income economies and 32% in middle-income countries
- At a regional level, significant export reductions in Sub-Saharan African (42%) and South Asia (41%).
A new study commissioned by the International Chamber of Commerce (ICC) and conducted by Oxford Economics analyses the potential long-term structural impacts of WTO dissolution on developing economies and unequivocally demonstrates the vital importance of the WTO in fostering global economic growth and development.
The demise of the rules-based multilateral trading system would result in greater uncertainty and higher information costs for all developing countries – and a 33% decline in global trade in goods, comparing to a baseline where the “status quo” of the rules-based multilateral trading system remains intact.
Least developed economies would see export declines of 43% without the essential safety net provided by multilateral trade rules (also compared to this baseline). The impacts of WTO dissolution would gradually intensify over time, with the full impact peaking by 2030 and remaining permanent.
Such a scenario would have devastating implications for global development and – at a human level – lives and livelihoods across the developing world.
The assumptions underlying our modelling may be viewed as conservative, involving a gradual erosion of trust that eventually results in a breakdown of members’ commitments to the rules-based system. This results in greater uncertainty, higher information costs for all countries and increased levels of protectionism between country pairs without pre-existing free trade agreements in place. But we do not assume that all the benefits associated with the WTO would be destroyed – the world is now so closely integrated through global value chains that incentives to adopt protectionist policies are permanently reduced. Yet, even under a conservative “best case” scenario, developing economies would be severely disadvantaged by the erosion of the multilateral trading system.
The findings of this first-of-its-kind analysis underscore the fundamental development safety-net provided by the WTO.
ICC Secretary General John W.H. Denton AO said:
“This study shows what is ultimately at stake – if the international community is serious about promoting global sustainable development, we must stop any further erosion of WTO rules and strengthen the multilateral system through successful reform of the organisation. It is high time to move beyond national positions and collaborate in our shared global interest.”
One of the lead authors of the study, Lloyd Barton, Head of Thematic Macro Consulting at Oxford Economics, said:
“The rules-based multilateral trade system has existed for so long that companies and consumers largely now take it for granted. But these rules are crucial to securing confidence in a stable and predictable trading environment. Our modelling of the long-term economic impact of potentially abandoning the WTO highlights the organisation’s importance for supporting trade as a critical enabler of growth in developing nations.”
