Time to break bad trade habits

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Remember your grandmother's warning that cigarettes would stunt your growth? As the global economy's arrested development continues, the persistent lack of international trade is beginning to look like its four-pack-a-day habit. To break it, some experts are wondering if we should scrap modern approaches and go back to a cure-all from a past generation: the World Trade Organization.

"Continued weak trade growth, and the sharp slowdown in 2015 and 2016, underlines concerns about the robustness of global growth," the Organization for Economic Co-operation and Development (OECD) said on Wednesday, as it once again trimmed its growth projections in its latest quarterly economic outlook. The OECD cut its forecast for economic growth to a slim 2.9 per cent for 2016 and a not-much-better 3.2 per cent for 2017, continuing what has become a distressing trend of delays and disappointments in the trajectory of global growth. (The OECD's estimate for 2016 is now nearly a full percentage point lower than it was in mid-2015.)

In its forecasts for Canada, the OECD sharply reduced its 2016 growth estimate, to a puny 1.2 per cent from its previous 1.7 per cent, and trimmed its 2017 forecast to 2.1 per cent from 2.2 per cent.

The OECD's outlook made it clear it considers the stagnant environment for global trade to be Public Enemy No. 1 in the world economy's persistent malaise. There's no getting around the fact that the growth pace of global trade is a mere shadow of what it was before the financial crisis – from an average of 6.5 per cent a year in the two decades before the 2008-09 crisis to a mere 2.5 per cent in 2015 and to actual declines in trade volumes in the first half of 2016.

"While demand factors play a role, weak trade also reflects structural factors and a lack of progress – together with some backtracking – on the opening of global markets to trade in goods and services," the OECD report said.

In a 38-page report on trade that accompanied the economic outlook, the OECD argued that global trade liberalization – which advanced in great leaps and bounds in the past two decades of the 20th century, fostering a sharp expansion in trade that was a key engine for global economic growth – has stalled dramatically since the start of the 21st century. For a while, it said, this lack of progress was masked by the rapid emergence of China's huge, trade-intensive economy. But with China's expansion slowing markedly, we are increasingly seeing the effects of a decade and a half of relatively little progress on global trade.

The OECD estimated that from 1991 to 1999, the liberalization in global trade policy – highlighted by earth-moving deals such as the WTO (pacts that involve most of the world's trading countries), the North American free-trade agreement and the European Union – was responsible for one-quarter of the period's strong growth in trade as a share of the global economy. But in the past five years, as trade's share of the global economy has declined, the stagnation of trade policy has been responsible for about one-quarter of the contraction.

Perhaps the turning point in trade progress can be traced back to WTO meetings to further liberalize trade in Seattle in 1999, which were marked by violent protests against what was perceived to be a secretive, back-room process dominated by the world's economic superpowers and corporate interests. The next round of WTO negotiations – the so-called Doha Round, initiated in 2001 and aimed to be more inclusive of the world's developing economies and underprivileged people – has been stalled for years. The catatonic WTO has become inconsequential as an avenue for further trade liberalization.

Into this void, we have seen the rise of bilateral and regional trade negotiations. But those deals amount to a series of preferential treatments, opening trade avenues for a select few while effectively creating new barriers for those outside the agreements. They lack both the comprehensive global scale and the legal and institutional heft the WTO provided to earlier liberalization efforts, thus watering down their impact on worldwide trade flows. And they are proving prone to getting bogged down in nationalistic and political self-interest – something that has quickly become amplified as protectionist rhetoric has risen in many countries.

In a new paper published by the Institute for Research on Public Policy, Queen's University professor Robert Wolfe argues that if Canada, in particular, wants to see meaningful progress in opening and expanding trade channels, we need to revive the WTO as the focus of the kind of multilateral trade negotiations that produced the global trade boom in years past.

"The WTO is ultimately Canada's best hedge against the inherent uncertainty about future trade and investment patterns – of not knowing today which foreign markets Canadian firms may wish to pursue in 10 years' time," Prof. Wolfe said.

Certainly, there are obstacles – not the least of which is figuring out how to abandon the Doha Round and start with a fresh slate. But there's little question the current stalling of global trade is a priority for all countries; it should be more than ample incentive to get back to the WTO table and find common ground to get the multilateral process moving again.