TWN Info Service on WTO and Trade Issues (Nov08/08)
22 November 2008
Third World Network

Trade: Global trade growth slowed down last year
Published in SUNS #6585 dated 7 November 2008

Geneva, 6 Nov (Kanaga Raja) -- Growth in world merchandise trade slipped to 6% in real terms in 2007, as a result of weakening demand in developed economies, realignments in exchange rates and fluctuations in the prices for commodities such as oil and gas, the World Trade Organization (WTO) said Wednesday.

In its "International Trade Statistics 2008", the WTO said that the slowdown of trade growth from 8.5% in 2006 to 6% in 2007 was due to a deceleration of import demand, mainly in the United States but also in Europe and Japan.

The WTO said that the 6% trade growth is slightly higher than the preliminary assessment of 5.5% announced in April but still a considerable decline from the 2006 figure.

The report said that trade remained strong in most developing countries. Regions such as Africa, the Middle East, the Commonwealth of Independent States (CIS), developing Asia, and South and Central America showed sustained growth in their economies in 2007.

While higher commodity prices helped to improve the financial situation of certain countries, higher energy and food prices also increased inflationary pressures worldwide.

For the 2000-2007 period, exports on average increased by 2.7 percentage points faster than real gross domestic product. The only exception was in 2001, when trade marginally declined due to the dot. com bubble burst.

The report said that exports of manufactured products expanded by 7.5% in volume terms in 2007, maintaining its lead over both agriculture and fuels and mining products, which grew by 5% and 3% respectively. The deceleration in trade in manufactured products from the 10% level achieved in 2006 is partly due to the slowdown of activity in major importing economies.

Asian exports of manufactured products expanded by 13.5% in 2007, but North American and European exports increased by only 4.5% and 4% respectively, almost half their 2006 rates.

Spurred by a 14% growth in prices, agricultural exports expanded by 19.5% in dollar terms in 2007, the highest growth rate since 2000. Europe, which accounts for 46% of world exports of agricultural products, boosted exports by 19%. Asia, the second-largest supplier with a share of 19%, increased its exports of agricultural products by 20%, a rate unmatched since 2000.

The report said that exports from North America, the third-largest supplier, rose by 17%. Its share of world trade has been progressively declining, from 21% in 2000 to 16% in 2007, due to the below world average export growth during this period (6% against 11% for the world). South and Central America registered its highest growth rate since 2000 (23.4%).

With an estimated 7% increase in average prices in 2007 and continuous expansion in volumes traded, the value of world exports of manufactured products rose by 15%. Europe increased its exports by 16.3%, an acceleration similar to 2005 and 2006. Asia maintained nearly the same level of growth as in 2006 (15.7%). North America registered the lowest growth (8.5%).

The report observed that trade flows within regions account for a higher share of world trade than flows between regions. Since 2000, this share has fluctuated from between 55% to 58%. Relatively large differences have occurred in the growth of trade within regions: North America and Asia show a relative balanced growth between inter- and intra-regional trade; Europe's intra-trade is growing much faster than its external trade due to the deepening of its economic integration while South and Central America, Africa, the Middle East and the CIS have recorded higher growth in inter-regional exports than in intra-regional.

The European Union is a highly integrated marketplace, with two-thirds of its trade transactions taking place within the region.

In 2007, intra-trade accounted for slightly more than half (51%) of the exports of the North American Free Trade Agreement (NAFTA). In 2000, this share was 56%. However, as trade with countries outside NAFTA's area has been growing at a somewhat faster pace than intra-NAFTA trade, this share has been declining.

Other trade blocs, such as MERCOSUR, the Andean Community or ASEAN, show a less pronounced integration. MERCOSUR countries carry out only around 14% of their trade with other countries in the agreement, the Andean Community only 8%, and ASEAN a quarter.

According to the report, Brazil, India and China are illustrative of a clear trend of vigorous growth among a number of emerging economies. While this growth implies a growing share of world trade, the share in world exports remains relatively small for most of the emerging economies individually.

The share of Brazil and India, for example, is still just over 1%, while China's share is approaching 10%. In 2007, Brazil exported merchandise worth $161 billion. With imports accounting for $127 billion, it recorded a positive trade balance of $34 billion. Since 2000, Brazil's exports have grown at an annual average of 17%.

India's merchandise exports reached $145 billion in 2007, growing at an annual average of 19% since 2000. More than 30% of its exports go to Asia, with Europe being the second-largest trading region (23%). The Middle East absorbs 17% of India's merchandise exports while North America receives 15%. In 2007, India's imports reached $217 billion, resulting in a negative trade balance of $72 billion.

Since China joined the WTO in 2001, it has almost quadrupled its exports while imports have more than tripled. In 2007, its trade surplus reached $262 billion. Some 45% of its trade receipts stem from Asia, while Europe and North America each receive 21% of China's exports.

The participation of Least-Developed Countries (LDCs) in world trade has been increasing over the past five years, albeit slowly, said the report. In 2006, the ratio of trade to GDP in LDCs continued to grow. For merchandise, LDCs' share in world trade grew to 1% due to the higher international prices of commodities. Their share of trade in commercial services amounted to 0.4% only. However, trade in commercial services is increasing in all major sectors, such as transportation, travel and other commercial services. Transportation services showed steady growth between 2000 and 2006, resulting in an average annual increase of 14%.

The report noted that in 2007, the value of trade in commercial services increased at a faster rate (18%) than trade in goods (15%) for the first time in five years. This was mainly due to the expanding international supply of many services and to the increase in transportation prices. While the services sector generates approximately two-thirds of the total world value added, its share in total trade remains below 19%.

In 2007, the major exporters of commercial services remained the European Union, the United States, Japan, China and India, which together represented just under two-thirds of world exports. In recent years, China and India's exports of commercial services have increased much faster than the world average.

Prices of agricultural products increased by 14% in 2007, compared with 7% for manufactured goods and 11% for fuels and mining products. This price rise helped to boost the value of agricultural exports, which rose by 19%, exceeding the performance of both manufactured goods and fuels and mining products, said the report.

Sharply rising prices of cereals and vegetable oils contributed to the 21% expansion of food exports. This price hike was due partly to strong demand on the part of developing and emerging economies and to a new demand for bio-fuels. The increased cost of fertilizers also contributed to the higher food prices, with prices for the most common fertilizers rising between 39% and 68% in 2007.

Net food exporters benefitted from the rise in prices, which tended to raise their export revenues. In 2007, India and Thailand saw their rice exports grow by a staggering 62% and 44% respectively. Russia and Brazil also experienced impressive growth in food exports (45% and 23% respectively).

Some 12% of Africa's import bill was devoted to food in 2007, nearly double the world average. Between 2002 and 2007, food imports increased sharply in China (an average annual growth of 27%), the 12 new member states of the European Union (27%) and the Commonwealth of Independent States (23%). Together, they increased their share of world food imports to 9.3% in 2007, from 5.6% in 2002.

World exports of fuels and mining products increased by 15% in 2007, significantly below the 28% recorded in 2006. This is mainly due to the lower growth in fuel prices, 11%, compared with 41% in 2005 and 21% in 2006. This is the first time since 2003 that world exports of fuels increased at a slower pace than that for other major product groups.

In 2007, world exports of manufactured goods were valued at $9.5 trillion, 15% higher than in 2006 and in line with the expansion of total merchandise exports. The share of manufactured goods in total merchandise exports was 70%; since 2000, however, this share has dropped by 5 points, said the report.