WTO Downgrades Economic Forecast

22-10-2019

 

Economists from the World Trade Organization (WTO) had to downgrade their forecasts for the third time in a row. World merchandise trade volumes are now expected to rise by only 1.2% in 2019, substantially slower than the 2.6% growth forecast in April. The projected increase in 2020 is now 2.7%, down from 3.0% previously provided.

This is not the first time that the WTO is ringing the alarm bell about the repercussions of economic tensions between the key major players. However, it comes at a sensitive timing where the integrity of WTO dispute settlement mechanism is about to become defunct as the US is blocking nominations of new judges to the WTO Appellate Body.

This looming paralysis means – there will be no more possibility to appeal a WTO decision of the first instance if the situation doesn’t change before December 2019. Without a proper enforcement of international trading rules, legal certainty is no longer guaranteed. As a result, businesses may have to operate in an unsettling legal and economic environment. This is also likely to slow down the conclusion of future trade agreements as they rely on the existence of WTO rules and the possibility to enforce them.

Several groups of countries presented suggestions on the way forward to the WTO but at this stage there is no real consensus on the way forward. In an attempt to address the upcoming uncertainty, the EU agreed on entering into interim appeal arbitration arrangements with third countries based on the existing WTO rules. However, at this stage, only two agreements of this kind (out of 164) have been notified to the WTO (Canada and Norway).

Beyond solving the immediate issue with trade legal remedies, this crisis has highlighted the need to look at a much wider reform of the WTO rules from 1996, so that they can better be aligned with the new realities of trade (i.e. the digital economy) and take into account sustainability and climate change concerns. Dialogue between different groups of WTO members has already started but given the nature of the WTO decision process, it is likely to take some time before any substantial change can take place.

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Making sure that global trade rules continue to deliver a predictable legal system is one of the key priorities of our Agenda 2024. The amfori Advocacy team will continue to monitor this topic and engage with relevant stakeholders highlighting the benefits of open and rules-based trade.

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