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The recent trade agreement reached by the World Trade Organization (WTO) has the potential to raise long-term global GDP growth. However, the agreement does not cover many of the areas that have been under negotiation since the Doha Round was launched in 2001. Extending the recent agreement to these areas would reap substantial dividends for global growth in the future. In particular, more could be done to leverage the positive impact of recent innovations in communications technology on global trade.

In early December 2013, the 159 member countries of the WTO reached their first ever agreement since the founding of the institution in 1995. The most important part of the so-called “Bali Package,” named after the Indonesian island where the deal was brokered, relates to trade facilitation. This legally binds members to simplified customs procedures, which should reduce costs and increase speed and efficiency of customs clearance. The deal also includes agreement on difficult issues, such as how the WTO handles food security programs and better access to advanced-world economies for the least-developed economies.

World trade liberalization is essential for economic development as it increases the flows of goods, services and capital. This reduces inefficiencies and exploits country-specific comparative advantages, thereby raising economic growth. The OECD has estimated that the recent agreement could lower the cost of trade by 10%-15% and eventually add between USD400bn and USD1trn to global GDP each year. The deal should raise trade flows, increase revenue collection, create more stable business environments and attract greater foreign investment.

Nonetheless, the Bali Package only partially completes the Doha Round launched in 2001, which aimed to lower trade barriers and revise trade rules. The agenda for the Doha Round tackled a broad range of issues including: agricultural subsidies; investment across borders; debt in developing economies; trade in services; intellectual property; and trade in IT products. Further agreements in these, and other areas, could reap enormous dividends for world growth in the future.

Historical World GDP Growth (1AD-2008)*

(compound annual growth**, %)


Historical GDP Chart


Sources: World Economics and QNB Group analysis

* North American and “Western” GDP growth

** CAGR for each 10-year period given after 1820

Global trade flows have underpinned rapid economic development in recent centuries. GDP growth was 0.2% from 1AD to 1820AD, according to World Economics. In the mid-1800s, new technological innovations in transport (steamships, railroads and canals) and communications (telegraph) greatly reduced transportation costs and led to a rapid increase in global trade. As a result, global GDP has grown at a compound annual rate of 3.6% since 1820. Further technological innovations have continued this process of global integration and greater trade. In the 1980s, global trade only accounted for 19% of world GDP; between 2004 and 2013 it averaged 30% of GDP.

The benefits of greater trade for economic development are clear. The rise of China and India as global economic powers in recent decades has been largely driven by their integration into the global economy through trade, lifting around one billion people out of poverty over the last 30 years.

Overall, it is clear that global trade agreements have enormous potential for higher economic growth. Furthermore, the latest innovations in communications technology create huge opportunity for growth in non-merchandise trade, such as trade in services, IT products and intellectual property. Innovations in communications also make it more straightforward to transfer financial capital around the world. An easing of restrictions in this area would further enhance global integration and trade. To fully harness the enormous potential of new technological innovation and keep pace with its advances, the WTO should accelerate the rate at which it makes agreements to more than once every 18 years.


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