Trade facilitation came hastening to the forefront of WTO issues as the international business community increasingly expressed concern for greater transparency, efficiency, and procedural uniformity of cross-border transportation of goods. Trade in service is relatively a new phenomenon and the main barriers for the sluggish growth are due to severe entry barriers. The WTO negotiations on trade in services gathered pace with the adoption of the negotiating guidelines and procedures. Still the road ahead is lengthy and potholed.
World trade (in agriculture, mining and manufacturing products) has grown at an average annual rate of 6.3% from 1950 through 2001. World output has grown at 3.8% annual average rate. Between 1950 and 2001, there have been only four significant declines in world trade in the years of 1958, 1975, 1982 and 2001. In the latter three years it was due to the lagged effects of oil price hikes, collapse of the ERM and the 9/11 attack.
Globalization is not new to the world. It has been around since before Great Britain ruled the waves and set out to make conquests. The world today, is a smaller, vastly transparent and healthy place despite the 9/11 terrorist attacks and spread of terrorism. During Phase I (1860-1914) world income nearly tripled while trade grew by 4.5 times. Low, stable and non-discriminatory tariffs were the contributory factors. Phase II (1920-1939) reversed the reductions in tariffs etc. Tariffs, quotas, licensing controls and exchange controlsall discriminatory import restrictionsproliferated. During this phase both world income and trade increased by 40% only. During Phase III (1950-2001) stable trade arrangements under General Agreement on Trade and Tariffs (GATT) and World Trade Organization (WTO) provided a set of rules and institutional structure that encouraged gradual reduction in trade barriers. As a result, world income grew by five times and trade increased by 11 times.
Within Phase III, during 1950-1973, world income and trade increased in the ratio of 1% to 1.6%. During 1973-1984 the ratio stood at 1% each. During 1985-2001 the ratio was at 1% to 3.5%. The reasons for this faster growth include: (i) Significant lowering of tariff and non-tariff barriers, (ii) Part replacement of domestic products with foreign imported products due to rise in the demand for diversity and product variety and (iii) Most importantly on account of the rise of vertical specialization and off-shore migration of manufacturing. All the trade theories of comparative advantage, increasing returns and the one by Mike Porter put together, do not entirely account for the surge in trade during 1985-2001. Ownership-of-trade change or vertical specialization accounts for about 65% of this surge. Vertical specialization involves splitting up of product manufacture into mutually exclusive stages, locating them in low-cost (off-shore) countries, assembling them and then exporting to the world. This trend would accelerate in the next ten years. |
