OECD Global Forum on Trade 3 November 2015 Paris France

Transcription

1 OECD Global Forum on Trade 3 November 2015 Paris France Medium term prospects for trade: Possible shifts in the level, direction, and composition of trade. Robert Koopman Chief Economist World Trade Organization

2 Prospects for Trade The evolution of international trade: past, present and future Doug Irwin long 90 s are an outlier, though typically trade has grown faster than output. Main reason, continued convergence/gravity. Trade costs remain high room to reduce well beyond tariffs TFA and other policies. Trade as a mechanism to enhance TFP and economic growth The WTO World Trade Report 2013 reminds of the importance of fundamental economic factors affecting international trade Demography, Investment, Natural resources, Transport costs, Technology, Institutions Are these likely to turn against increased exchange? Yes, policy is relevant but keep in mind Some of the factors above can cut both ways (demography and technology), but also income inequality (mpc), environment, etc.

3 First railways in Britain and Europe Improved refrigeration Expanding steamship routes 1869: Suez canal and US transcontinental railroad Falling food prices enable more European industrialization Large scale migration Northern dominance and bipolarity Diesel replaces coal Huge specialized bulk freighters and port expansions Container shipping Great divergence peaks, but NIEs emerge Opening of ex- Communist economies GVCs Rise of developing countries Resurging commodities Global synchron. of shocks Historical perspective Development waves with ever faster growth Combination of technological advances, trade opening (and migration) Age of globalization Industrial revolution and steam engine Interwar period Post-war golden age

4 Trade opening 1980 to today Opening up of Soviet bloc and China: - Global labor force available for trade quadruples 1995: WTO established 1994: Uruguay round concluded 1997: ITA becomes effective 2000s: RTA proliferate 2001: China joins WTO 2010s: Megaregionals, push for deeper integration 1970s-today: Rise of MNEs

5 Escaith and Miroudot, 2015

6 A more stable Trade (iva) elasticity

7 Role of WTO A predictable and transparent rule-based system promotes trade and investments. Particularly clear for countries that have recently acceded to the WTO Trade barriers reduced: Tariffs have fallen and binding coverage increased. Flexibilities allowed in WTO rules, specifically through preferential access for LDCs, have supported the good economic performance of the poorest. Summary of challenges

8 In the last 2 decades, faster GDP growth in developing countries has allowed convergence (more on this later) with developed countries. Convergence

9 Escaith and Miroudot, 2015 Convergence

10 WTR Scenarios

11 Results (overall): GDP levels

12 More is at stake for some countries than others Predicted annual growth rates of exports and GDP, average (per cent) Source: WTO Secretariat, based on Fontagné and Fouré (2013) and Fontagné et al. (2013)

13 What about alternative scenarios say for China? WB DRC China 2030 study Shift from investment led, manufacturing economy to consumption led services economy. Enough information in that study to create a future China in a dynamic trade model. Simple assumptions not much compositional change - about rest of world but probably should consider alternative futures for key traders. Model reconciles different views on states of the world with implications for GDP, prices, and trade flows. While WB DRC focused on effects within China, we wanted to see what it might mean for the rest of the world, beyond China s borders. Significant impacts compared to now, or a future global economy if China does not change composition of economy. 13

14 What might be the implications of changes in this pattern of growth? Savings, Investment, and CA All Increased Relative to GDP Expenditure Side of GDP (% of GDP) 1978-Today Notes Savings Despite in Wages Private Consumption Government Consumption Investment Rate of return dropping Current Account Same direction as balance w/us Production Side of GDP 1978-Today Notes Ag Resources moving from ag production Industy to industrial production Services and services.

15 Pressures Towards Consumption-Led Growth Expenditure Side of GDP (% of GDP) 1978-Today Projection Projection Explanation Savings Private Consumption As wealth Government Consumption Social safety spending to Investment Rate of return Current Account Same direction as balance w/us Production Side of GDP 1978-Today Projection Note Ag Richer consumers and gov initiatives will increase consumption levels Industy Drop in manufacturing as wages Services Same direction as balance w/us Demand-driven shock (changing consumption preferences)

16 The Modeling (Assumptions from WB/NDRC 2030 Report) Growth (annual, in percent) GDP Labor Labor Productivity GDP: Expenditure Side Investment/GDP Consumption/GDP GDP: Production Side Industry/GDP Services/GDP Employment Share in Agriculture Share in Services

17 The Simulation Results- Real GDP

18 The Simulation Results- China Trade balance

19 The Simulation Results- U.S. Trade balance

20 The Simulation Results- Economy Composition

21 Developing country participation in GVCs There is wide variation among developing countries: In levels of participation In type of participation Services have become more important through GVCs.

22 The rise of GVCs Many, though not all, developing countries have become increasingly involved in GVCs. South-south trade has increased. Figure C.1: Imports of parts and components by country group, (US$ billion) 3,000 2,500 2,000 1,500 1, Developing countries 0 Developed G-20 developing Other developing

23 Trade policies are crucial for GVCs (alongside various domestic policies). Countries with higher GVC participation: reduced significantly their tariffs on intermediate goods; and also made deeper commitments under the GATS. Role of trade policies

24 Trade costs remain high Trade costs include all costs incurred in getting a good to a final user other than the marginal cost of producing the good itself - 170% ad valorem tariff equivalent for a representative rich country - 219% ad valorem tariff equivalent for developing countries Trade costs 219% of production value Developing Countries Distance and borders Tariffs Currency Production value of good Culture Other policy costs Trade facilitation (logistics) and connectivity 24

25 TFA implementation would reduce trade costs On average, TFA implementation would reduce trade costs by 14.3% This is larger than eliminating all applied MFN tariffs Average applied MFN tariff is less than 10% Do the math! 25

26 CGE Results Exports GDP Variable Units Pace of Implementation 2007 constant dollars Addition to annual export growth, constant dollars Addition to annual GDP growth, $750 billion $1,045 billion 2.1% 2.7% $345 billion $555 billion 0.3% 0.5% 26

27 Developing country impact Exports ($ billion) 35,000 30,000 25,000 20,000 15,000 10,000 5, Year Developed Developing Developed_TFA Developing_TFA 27

28 Gravity model results Group Partial Implementation ($ Billion) Full Implementation ($ Billion) Developed $697 10% $1,665 26% G20 Developing $265 7% $1,168 27% LDCs $11 13% $47 36% Other Developing $159 9% $684 31% World $1,133 9% $3,565 29% 28

29 Key insights Benefits are greater for implementing countries The fuller the scope of TFA provisions implemented The faster the pace of implementation Developing countries potentially have the most to gain 29

30 Other benefits of TFA implementation Export diversification Enhanced participation of implementing countries in GVCs Increased participation of SMEs in international trade More FDI Greater customs collection Lower incidence of corruption 30

31 Export Diversification TFA implementation reduces fixed costs of trade - Allows firms to export products they had previously sold only in the domestic market - Allows firms to enter markets that were too costly to enter before Grouping Products Markets Developed economies G-20 developing economies 9.8% 19.0% 11.6% 19.4% LDCs 35.6% 59.3% Other developing economies 20.0% 33.2% 31

32 Expansion of GVCs in implementing members Timeliness and predictability in delivery time matters for trade in GVCs Delays in delivery increase the costs of holding stocks, impede rapid responses to changes in customers orders CGE results of TFA implementation: exports in sectors where GVCs are known to be prominent, e.g. electronics and textiles and clothing, would increase at an additional average rate of almost 1 per cent per annum compared to non-gvc sectors 32

33 0 5 Log (minimum export sale) in US $ More SMEs participate in trade Trade facilitation can promote the entry of SMEs into export markets. Smaller firms are more likely to export and can increase their export shares more than large firms Log (time to export) in days 33

34 Increased inward FDI Available economic literature supports the argument that improved trade facilitation increases inward FDI: Foreign investors are likely to see trade facilitation as a proxy for a country's investment climate There are empirical studies showing that countries with inefficient trade procedures receive less FDI Estimates in the report suggests that this link between trade facilitation and FDI is stronger for small economies 34

35 Where is the world going? Slow, and uneven, growth in developed world. Major technological change, particularly in mfg. rise of robots? Changing role for China in global economy and GVCs? Outward FDI How will India evolve? Internal focus or global integration or both? Other emerging markets impact of commodity markets? Continued EXCHANGE of know-how and capabilities, and access to each others markets. Greater role for cooperative solutions to global governance challenges in internal commerce vs. mercantilistic market access exchanges?