Tackling global inequality through collaborative trade

The world is witnessing a surge in regionalization, causing fragmentation in the global economy and trade systems. Noteworthy recent achievements, however, include the African Continental Free Trade Area, the Pacific Agreement on Closer Economic Relations Plus and the Regional Comprehensive Economic Partnership Agreement. Nevertheless, trade tensions have been on the rise hampering global progress in sustainable development. International trade regulations and dispute settlement mechanisms face pressure. In light of these global risks, it is essential to take action and rely on multilateral rulemaking to allow developing countries to integrate into the global economy and thereby "allow cross-border trade to transform economies, unlock growth and reduce poverty" -—
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2021 saw a peak in regional trade agreements

RTAsRegional Trade Agreement. Refer to reciprocal trade agreement between two or more partners, not necessarily belonging to the same region. RTA is an exception to the WTO rule of non-discrimination. WTO members are permitted to enter into an RTA under specific conditions. (WTO, 2023a). WTO members are obliged to notify the RTAs in which they participate. All of the WTO's members have notified participation in one or more RTAs (some members are party to 20 or more). Notifications may also refer to the accession of new parties to an agreement that already exists. make it easier for countries to engage in trade, encourage investment and limit trading costs. Since the inception of the GATTThe General Agreement on Tariffs and Trade (GATT) is a multilateral agreement, originally negotiated in 1947 in Geneva among 23 countries, to reduce tariffs and other trade barriers. It provides a framework for periodic multilateral negotiations on trade liberalisation -—
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—-./ WTOWorld Trade Organization system in 1947, most economies across the world have negotiated bilateral or multilateral trade agreements with the objective of reducing barriers to trade and promoting exchange of goods and services among members. Nowadays, practically all countries participate in at least one RTARegional Trade Agreement. Refer to reciprocal trade agreement between two or more partners, not necessarily belonging to the same region. RTA is an exception to the WTO rule of non-discrimination. WTO members are permitted to enter into an RTA under specific conditions. (WTO, 2023a). WTO members are obliged to notify the RTAs in which they participate. All of the WTO's members have notified participation in one or more RTAs (some members are party to 20 or more). Notifications may also refer to the accession of new parties to an agreement that already exists.. As of 15 March 2023, 355 RTAs were in force for both goods and services, as compared to 136 in 2005 -—
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—- (Figure 1). The increase in RTAs was particularly remarkable in 2021, largely due to 3 enhanced and 33 continuity agreements signed by the United Kingdom since leaving the EUEuropean Union.

Environmental considerations entered trade negotiations

Since 2000, countries have started to increasingly incorporate provisions on environmental sustainability in RTAs. The share of RTAs including binding environmental obligations grew from 2 per cent in 2000 to 15 per cent in 2021 (Figure 2). These obligations are central to strengthening environmental laws and fostering environmental sustainability, as RTAs are also likely to expand economic output and trade with potentially increasing CO₂Carbon dioxide (CO₂) is a colourless, odourless and non-poisonous gas formed by combustion of carbon and in the respiration of living organisms -—
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—-. emissions. -—
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Tariffs on green goods¹ are nearly as high as tariffs on non-green goods. In 2021, the average applied tariffThe actual tariff rate in effect at a country’s border (including preferential rates). imposed on international trade of green products amounted to 1 per cent in developed countries and 4.4 per cent in developing countries -—
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—- (Figure 3). This represents a decrease of about 1 percentage point from 2012 for the two groups, largely explained by the overall trade liberalization, rather than specific initiatives to promote trade of green goods. MFN tariffsMost Favoured Nation (MFN) tariffs are a tariff level that a member of the General Agreement on Tariffs and Trade of the WTO charges on a good to other members, i.e. a country with a most favoured nation status -—
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—- It applies to imports from trading partners-members of the World Trade Organization (WTO), unless the country has a preferential trade agreement. It is the lowest possible tariff a country can assess on another country. are notably higher than applied tariffs. The average MFNMost-favoured-nation (MFN) is a status or level of treatment accorded by one state to another in international trade. Under the WTO agreements, countries cannot normally discriminate between their trading partners. -—
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—- . tariffs are about 3 per cent for developed countries and 7 per cent for developing countries. MFN tariffs on green products are lower than on their non-green counterparts and other manufacturers, as the latter are generally already subject to relatively high tariffs.

Tariffs on green goods are higher for products related to the heat and energy management sector, resource-efficient products, and goods related to the protection of natural resources, which also experience numerous tariff peaks. Conversely, tariffs tend to be lower for environmental monitoring equipment, waste management and recycling. Only about 2 per cent of the tariffs in these sectors are above 15 per cent. -—
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Tariffs trending downwards with zero MFN tariffs and preferential duty-free access

Since 2010, reductions of MFN and preferential tariffs occurred in agriculture, manufacturing, and natural resources. Simple-average preferential tariffs declined at a faster pace than MFN tariffs. In 2021, simple-average MFN tariffsSimple average of MFN applied duties. in these sectors amounted to 15.5 per cent, 6.3 per cent, and 2.5 per cent, respectively (Figure 5). Trade-weighted averages tariffs have in some instances increased, which was largely due to retaliatory tariffs imposed by the United States of America and China on each other -—
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About two thirds of international trade is free of tariffs. Agricultural trade is largely free from tariffs due to preferential access and reciprocal concessions, while the remaining tariffs are high (about 20 per cent) (Figure 6). Preferential access is also important for trade in manufacturing products, where the average tariff on non-free trade was almost 10 per cent in 2021. For natural resources, preferential access is less important, as trade in these goods is largely tariff-free under MFN rates, and the remaining tariffs are generally very low (about 5.8 per cent).

Globally, overall tariffs rates have remained unchanged in recent years. The average tariffs applied worldwide is used as an indicator of success in promoting a universal, open and non-discriminatory trading system under SDG target 17.10. Decreasing tariffs applied provide wider access to goods and a more open trading system. In developing regions, in 2021, the recorded levels ranged from 5 per cent for countries benefiting from MFN status to 3 per cent for those with preferential status. The lowest levels of tariffs were observed in the European Union for both measures, with the worldwide weighted tariffs averaging 0.6 per cent for countries with preferential status and 1.2 per cent for countries with MFN status.

Progress towards improved market access for developing countries and LDCs is slow

Target 17.12 of the 2030 Agenda aims at realizing duty-free and quota-free market access for all least developed countries, including by ensuring transparent and simple preferential rules of origin to imports from LDCs and contributes to facilitating market access. In 2021, import tariffs (including preferences) and MFN tariffs applied by developed countries to all products from LDCs remained stable since 2015 and amounted to 1.1 per cent and 3.1 per cent, respectively. Tariffs varied across product groups, ranging from 5.9 per cent for clothing to 0.4 per cent for industrial products for countries that benefit from preferential status. For developing countries, tariffs including preferences stood at 1 per cent for all products, 0.1 percentage point lower than in 2015, ranging from 7.9 per cent for agriculture to 0.9 for industrial products. MFN tariffs were lower for developing countries (2 per cent) than for LDCs (3.1 per cent), which is 0.1 percentage point below the 2015 level.

Although tariffs are generally low, there are many products subject to high tariffs. Tariffs are particularly high for agricultural products, as well as apparel, textiles, and tanning. For example, tariffs above 15 per cent are imposed on about 8 per cent of global trade in food (which make 29 per cent of the products in this group). Similarly, more than 12 per cent of international trade in apparel and 19 per cent in tanning are subject to tariffs of 15 per cent or more. Tariff peaks for food products are particularly prevalent in developing countries of South Asia and Africa, imposing significant tariffs on their imports.

In 2021, LDCs were granted duty-free market access on 83.2 per cent of tariff lines², the share which remained constant since 2015 (arms excluded). In contrary, the share of developing countries exports entering duty free has increased by 4 percentage points and amounted to 72.6 per cent of tariff lines³ The highest proportions of duty-free exports from LDCs, excluding oil, were found in trade in agricultural products (87.6 per cent) and industrial products (85.2 per cent). As for developing countries, 62 per cent of their exports of agricultural products and 75.7 per cent of industrial products entered the world markets duty-free.

The increase of non-tariff measures is a growing concern for developing countries

NTMsNon-tariff measures (NTMs) are policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices or both such as technical barriers to trade, price-control measures, etc. -—
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—- often impede trade more than border duties. Their effects on international trade can be both negative or positive. Technical NTMs, such as TBTTechnical barriers to trade (TBT) are measures referring to technical regulations, and procedures for assessment of conformity with technical regulations and standards. affect more than 30 per cent of product lines and almost 70 per cent of world trade. The agricultural sector, where most of world agricultural trade is subject to SPSSanitary and phytosanitary measures (SPS): Any measure applied: (a) to protect animal or plant life or health within the territory of the trade partner from risks arising from the entry, establishment or spread of pests, diseases, disease-carrying organisms or disease-causing organisms; (b) to protect human or animal life or health within the territory of the trade partner from risks arising from additives, contaminants, toxins or diseases causing organisms in foods, beverages or feedstuffs; (c) to protect human life or health within the territory of the trade partner from risks arising from diseases carried by animals, plants or products thereof, or from the entry, establishment or spread of pests; or (d) to prevent or limit other damage within the territory of the trade partner from the entry, establishment or spread of pests -—
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—-. and TBT, is more regulated than manufacturing and natural resources.

Notes

1. Green goods refer to the OECD Combined List of Environmental Goods (CLEG). The CLEG identifies 248 environmental goods, classified according to the Harmonized System (HS) at the 6-digit level. as used in -—
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   —-, which provides the Harmonized System 6-digit level codes of 248 products. There is no consensus on which traded goods should be deemed “green”. This list represents a practical approach to overcome the challenges to defining an internationally agreed list of environmental goods.
2. Limitations of this indicator include the following: tariff-based measures are only a part of trade limitation factors; inability to comply with rules of origin criteria limits the utilization of preferential treatments; using data on zero-tariff lines assumes full utilization of benefits; low MFN tariffs mean that duty-free treatment is not always preferential -—
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3. Proportion of total number of tariff lines applied to products imported from LDCs and developing countries is presented in per cent, corresponding to a 0 per cent tariff rate in HS chapter 01-97. This indicator allows observing how many products from developing countries and LDCs have free access to markets in developed countries.

References

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