Trade plays a vital role in providing livelihoods for farmers and practitioners along the food supply chain. It also helps reduce global food insecurity and provides more choices for consumer products.
Agricultural trade has grown strongly over the past two decades, reaching almost 7 percent per year in real terms from 2001 to 2019. But agricultural trade is not only growing, it is becoming “global”. A growing share of agricultural trade in global value chains (GVCs) – agricultural and food processing value chains spread across multiple countries – links the agricultural sector with the rest of the economy around the world.
The COVID-19 pandemic has disrupted global trade, with the agriculture and food sectors more resilient than the rest of the economy. In the first few months of the pandemic, price increases for major crops were avoided due to market conditions and policy transparency. The swift response by policymakers and the private sector has succeeded in preventing severe disruptions to agricultural trade, including the global seed market. However, bottlenecks in transportation and logistics complicate the transportation of agricultural products and food around the world and lead to increased transportation and transportation costs. Policies that ensure uninterrupted production and transportation of agricultural products are key to ensuring supply chain resilience.
Digital transformation reduces the cost of participating in international trade, facilitates the coordination of global value chains (GVCs), helps spread ideas and technologies, and connects more businesses and consumers globally. But the adoption of new business models also raises more complex international trade transactions and policy issues.
In today’s fast-paced and interconnected world, governments face new regulatory challenges, not only in managing the problems caused by digital disruption, but also in ensuring that the opportunities and benefits of digital trade are realized and shared in an inclusive manner.
Underpinning digital trade is the flow of data. Data is not only a means of production, it is an asset that can be traded in itself, and a means of organizing global value chains and providing services. It also supports physical trade less directly by facilitating the implementation of trade facilitation. Data is also at the heart of new and rapidly growing service delivery models such as cloud computing, Internet of Things (IoT) and additive manufacturing.
Digitization has increased the scale, scope and speed of trade. It enables the company to bring new products and services to more digitally connected customers around the world. It also enables companies, especially smaller ones, to use new and innovative digital tools to overcome barriers to growth, help facilitate payments, enable collaboration, avoid investment in fixed assets through the use of cloud-based services, and use alternative financing mechanisms. Digitization is also changing the way we trade goods. At the same time, new technologies and business models are changing how services are produced and supplied, blurring the already blurred lines between goods and services and how they are delivered, and introducing new combinations of goods and services.
The services sector is an important part of the global economy, accounting for more than two-thirds of global gross domestic product (GDP), attracting more than three-quarters of foreign direct investment in advanced economies, employing the largest number of workers, and creating the most new jobs in the world. Services have always been transitional.
Over time, advances in communications technology have brought new services to the global economy, and the World Trade Organization’s General Agreement on Trade in Services (GATS) has brought the certainty of a rules-based global system to services markets. It defines services as transactions between residents and non-residents. Based on the geographic presence of suppliers and consumers at the time of the transaction, the agreement classifies trade in services by mode of delivery, known as “mode of supply”.
There is not one service industry, but many services with different business models, competitive challenges and regulatory frameworks. To maximize the benefits of technology, targeted policy reforms need to identify key bottlenecks and best practice regulatory benchmarks.
In countries at all levels of development, SMEs play an important role in job creation—they employ around 60 to 70 percent of workers in most countries—and can be a significant source of economic activity.
SMEs contribute to today’s economy and society, but they are often underrepresented in international trade. In particular, relative to their share in overall activity and employment, they represent only a small fraction of exports. This is partly because SMEs have fewer resources to cover the high costs often associated with participating in international markets. Compared with large companies, small companies also face greater challenges in developing foreign markets and are less able to deal with complex regulatory requirements.
Trade can have both positive and negative impacts on the environment: Economic growth resulting from trade expansion can have a clear direct impact on the environment by increasing pollution or degrading natural resources.
However, by supporting economic growth, development and social welfare, increased trade can in turn improve the ability to manage the environment more efficiently. Opening markets can improve access to new technologies by reducing the use of inputs such as energy, water and other environmentally harmful substances, thereby increasing the efficiency of local production processes.
Likewise, trade and investment liberalization can incentivize companies to adopt stricter environmental standards. As a country becomes more integrated into the world economy, its export sector becomes increasingly vulnerable to environmental demands imposed by major importing countries.
Consequences of climate change could disrupt trade: The immediate impact of climate change on trade could come from more frequent extreme weather events and rising sea levels. Supply, transport and distribution chain infrastructure may be more vulnerable to disruption from climate change. Shipping accounts for around 80% of global trade and could suffer negative impacts, such as more frequent port closures due to extreme events. What’s more, climate change is expected to reduce the productivity of all factors of production (i.e. labor, capital and land), ultimately leading to lost output and reduced global trade.
Effective environmental policy and institutional frameworks are needed at the local, regional, national and international levels, linking trade and environmental policies.
International trade and investment are often thought of as two sides of the same coin, but the relationship is complex and has evolved over time.
The effects of restrictions and distortions on cross-border trade and investment extend beyond their respective policy areas and can have significant spillover effects, amplifying costs both domestically and globally. However, policymakers often do not take a comprehensive or coordinated policy approach to setting the rules governing trade and investment; without more policy coherence between the two, we will not achieve the expected economic and social gains, and may even lead to adverse effects.
In some countries, mineral resources represent a huge source of income and wealth. But resource abundance does not always lead to sustained economic growth and development—it can have the opposite effect. Countries that rely heavily on mineral wealth tend to have weaker institutions, less spending on education, and higher levels of corruption.
In the countries and regions where mining occurs, the mining industry typically provides few direct employment opportunities. To create more jobs, some countries restrict the export of unprocessed minerals to encourage higher-value downstream processing jobs in the domestic market.
Raw material export restrictions are also used to achieve other goals.