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WTO lowers trade growth forecast

10th October 2014

By: Callie Lombard

  

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World Trade Organisation (WTO) economists announced on September 23 that they had reduced their forecast for world trade growth in 2014 to 3.1% (down from the 4.7% forecast made in April) and cut their estimate for 2015 to 4% from 5.3% previously.

This downgrade was the result of weaker- than-expected gross domestic product (GDP) growth and muted import demand in the first half of 2014, particularly in natural resource exporting regions, such as South and Central America. Beyond this specific downward revision, risks to the forecast remain predominantly on the downside, since global growth remains uneven and geopolitical tensions and risks have risen.

According to WTO director-general Roberto Azevêdo, international institutions have significantly revised their GDP forecasts as a result of disappointing economic growth in the first half of the year, which prompted the WTO to reduce its growth forecast for 2014 and 2015. He expects uneven growth and continuing geopolitical tensions to remain, which poses a risk for both trade and output in the second half of the year. Azevêdo has also reminded of the positive role that trade can play and said that the cutting of trade costs and the broadening trade opportunities can be key to reversing this trend.

According to the WTO, although growth has strengthened somewhat in 2014, it has remained unsteady. Output fell in the first quarter in the US (–2.1%, annualised) and in the second quarter in Germany (–0.6%), sapping global import demand. China’s GDP growth also slowed from 7.7% in 2013 to 6.1% in the first quarter of 2014, before rebounding in the second quarter. The slow first quarter contributed to weak exports in these countries’ trading partners. As a result of these and other factors, global trade stagnated in the first half of 2014, as the gradual recovery of import demand in developed countries was offset by declines in developing countries. Growth in trade and output is expected to be somewhat stronger in the second half of 2014 as governments and central banks may provide policy support to boost growth, and as idiosyncratic factors that weighted on trade in the first half (such as a harsh winter in the US and a sales tax rise in Japan, besides others) begin to fade. However, several risk factors on the horizon have the potential to produce worse economic outcomes.

The WTO says tensions between the European Union (EU) and the US, on the one hand, and the Russian Federation, on the other, over Ukraine have already resulted in trade sanctions on certain agricultural commodities, and the number of products affected could increase if the crisis persists. Conflict in the Middle East is also stoking uncertainty and could lead to a spike in oil prices if the security of oil supplies is threatened. Further, an outbreak of the Ebola haemorrhagic fever in West Africa has proved difficult to contain, and any spread of the disease could trigger broader panic, with major economic implications for West Africa and perhaps even beyond the region. Azevêdo also notes that the presence of several such low-probability/ high-cost risk factors has made the WTO trade forecast particularly difficult to gauge this year.

WTO Dispute Settlement
Azevêdo told the WTO dispute settlement body on September 26 that there “is no question that the WTO’s dispute settlement system has been a success”. He noted that, in just under 20 years, the system had received 482 requests for consultations, a lot more than the 300 disputes the General Agreement on Tariffs and Trade received in 47 years. He also noted that, in the first 16 years of the WTO’s being in existence, estimates suggest the system handled disputes covering at least $1-trillion of trade flows. He said: “While this is welcome, it does create some real challenges.” These included the doubling since 2012 of disputes being handled by the secretariat, and a much-higher-than-expected rate of appeals.

Farm Talks
WTO agriculture delegates continued to differ on how to proceed with work on agriculture under the 2013 Bali Ministerial Conference’s decisions and in the Doha Round talks, this time when they met as negotiators on September 23.

Regional Trade Agreements
In closing the WTO seminar on cross-cutting issues in regional trade agreements (RTAs), on September 25, Azevêdo said that RTAs “are important for the multilateral trading system – but they cannot substitute it”. He pointed to “big issues”, such as trade facilitation, financial or telecoms regulations or farming and fisheries subsidies that “can only be tackled in an efficient manner in the multilateral context through the WTO”.

Sugar Rate of Duty Increase
On September 26, the South African Revenue Service (Sars) informed of an increase in the rate of customs duty (‘general’, EU, European Free Trade Association and Southern African Development Community) on sugar, classifiable under tariff subheadings 1701.12, 1701.13, 1701.14, 1701.91 and 1701.99, from 92,6c/kg to 142,5c/kg as per the existing variable tariff formula. The decision is documented in the International Trade Administration Commission of South Africa’s Minute M04/2014.

Coconut Milk and Cream Tariff
On September 25, Sars informed of a High Court judgment that was reported on September 12, in the matter between Coltrade International versus the Commissioner for Sars, in terms of Section 47(9)(a) of the Customs and Excise Act, on whether the tariff determination on coconut milk, coconut cream etc was correctly classified by Sars under tariff subheading 2106.90.90 or whether it should have been under tariff subheading 2008.19. The next column will detail the judgment.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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