The World Trade Organization's (WTO's) latest annual report has warned of the need to focus on reglobalizing trade efforts in order to counter a growing trend towards fragmentation and the emergence of competing blocs.

Its 2023 World Trade Report noted that there is a clear correlation between free and fair trade and global peace and prosperity, but that the international order that has been established post-1945 is increasingly being called into question.

The report observed that recent crises, including the COVID-19 pandemic and the war in Ukraine, have helped create a belief that globalization exposes economies to greater risk.  "Consequently, a trade-skeptic narrative has gained traction, suggesting that international trade is an obstacle to building a more secure, inclusive, and sustainable world," it stated.

In order to counter this, director-general Ngozi Okonjo-Iweala said international cooperation will be required, adding that this includes much-needed reforms to the WTO on areas such as agriculture.

"The WTO is not perfect - far from it. But the case for strengthening the trading system is far stronger than the case for walking away from it," she stated.

Trade 'resilient', but work to be done

Overall, the report found that global trade has shown surprising resilience in the face of a challenging environment. For example, it highlighted the importance of trade during the pandemic in delivering vaccines and other medical supplies around the world. 

Meanwhile, an "open and predictable trading system" has been crucial in mitigating supply shortages and price spikes related to the war in Ukraine, as countries have been able to source essential goods from alternative suppliers.

However, it is clear that more efforts are needed. The study noted, for instance, that trade costs in developing countries are still around 30 percent higher than in developed nations, while costs in agriculture are 50 percent higher than those in manufacturing.

Early signs of fragmentation

One major warning of the report was that there are early signs of growing trade fragmentation along geopolitical lines. It noted that trade between two hypothetical blocs, based on UN voting patterns, has grown six percent more slowly than trade within these blocs. Meanwhile, bilateral trade between the US and China has slowed dramatically in the last 12 months in key categories such as semiconductors.

It noted that should the global trade system go further down this path, it could lead to a scenario where supply chains are more vulnerable to shocks, more people are shut out of economic progress and the world is less secure.

However, the report did add that claims of a major split put forth by some commentators are exaggerated. It stated: "Talk of deglobalization is on balance still not supported by the data. The publication points to the expansion of digital services trade, environmental goods trade, and global value chains in addition to the resilience of trade to recent global crises."

Emphasizing multilateralism

A major theme of the report and the WTO Public Forum event at which it was presented was the importance of a multilateral system of trade. To achieve this, greater international cooperation will be essential.

This point was also emphasized by former UK prime minister and UN special envoy for global education Gordon Brown, who gave the keynote address at the conference. He said that at a time when these efforts are facing resistance from various quarters, it is important to forge a "new multilateralism".

Mr Brown said that if a narrow, self-interested focus continues and results in global trade splitting into two separate economic blocs, the resulting loss of trade and productivity could reduce real incomes around the world by at least five percent, with low-income nations suffering an even bigger fall of 12 percent.

“The sheer scale of the global problems - climate, pandemics, financial stability, poverty, debt and famine - all linked to another global public good, trade, should mean we have no choice but to create a launch pad and landing ground for a new multilateralism,” he continued.