April 26, 2024

Since the signing of the Marrakesh Agreement Establishing the World Trade Organization on 15 April 1994, global trade has surged, reaching over US$ 30.4 trillion in 2023, a fivefold increase since 1995. At the same time, tariffs have declined markedly under the WTO, helping to reduce trade costs. This growth in trade has coincided with a significant decrease in poverty worldwide, indicating the impact of trade on supporting economic development and improving people’s lives.

Goods and services trade have grown substantially

When the WTO was launched 30 years ago, the aim was to create a new global order, based on openness, inclusivity and cooperation. Established as the successor to the General Agreement on Tariffs and Trade (GATT), which mainly dealt with trade in goods, the WTO also covers trade in services and intellectual property, with the overall objective of helping its members use trade as a means to raise living standards, create jobs and improve people’s lives.

The 30 years since the WTO’s creation have ushered in a new era of trade and economic growth. Between 1995 and 2023, total world trade — goods and commercial services — saw strong growth, averaging 5.8 per cent per year. This translates into an almost fivefold increase in world trade (see Figure 1).

Notably, trade in commercial services outpaced goods trade, with an average annual increase of 6.8 per cent, compared to 5.5 per cent for goods.

The growth of world trade outpaced that of global gross domestic product (GDP), which increased by an average of 4.4 per cent per year over the same period. The global trade-to-GDP ratio showed a significant upward trajectory, rising from 20 per cent in 1995 to 31 per cent in 2022, before falling back to 29 per cent in 2023, as goods trade declined in value terms on a balance-of-payments basis (see Figure 2).

This indicates the growing interconnectedness of economies through trade, despite temporary declines during the global financial crisis of 2008-09 and the COVID-19 pandemic in 2020.

Share of services in trade — particularly digitally delivered services — is growing

The past three decades also witnessed a growing share of services in global trade.

Thus, the share of commercial services in world trade increased from 19 per cent in 1995 to 25 per cent in 2023 (see Figure 3). However, it is important to note that these figures do not account for services trade under mode 3 of the General Agreement on Trade in Services, which involves local sales by the established affiliates of foreign services companies.

Consequently, these figures substantially underestimate the true extent of services activity in global trade. According to the WTO’s latest estimates, recently presented in the Global Trade Outlook and Statistics, with the inclusion of mode 3 services trade, the services share of global trade in 2022 was close to 42 per cent.

WTO estimates also show that digitally delivered services have experienced a fourfold increase in value since 2005, with an average annual growth rate of 8.2 per cent over the period 2005-23. This growth has outpaced that of goods (4.8 per cent) and of other services exports (4.6 per cent) (see Figure 4).

Global exports of digitally delivered services soared to US$ 4.25 trillion in 2023, up 9.0 per cent year-on-year. Digital delivery includes services traded across borders via computer networks (through the internet, mobile apps, emails, voice and video calls), and, increasingly, through digital intermediation platforms (such as those used for online gaming, music and video streaming, and remote learning).

Digitally delivered services accounted for over 54 per cent of total services exports, and for 13.8 per cent of total combined exports of goods andservices in 2023 (compared to 8 per cent in 2005).

For further insights on services trade, visit the Global Services Trade Data Hub.

Share of trade between developing economies has significantly increased

Over the past three decades, the rapid economic growth facilitated by trade in developing and emerging economies has significantly transformed trade patterns, with particular growth in global trade between developing economies.

Trade between developing economies expanded at a rate of 9.7 per cent per year, surging from less than a tenth of global trade in 1995 to nearly 25 per cent by 2022, reaching a total value of US$ 6.1 trillion.

In contrast, while trade between developed economies accounted for over half of global trade in 1995, by 2022 this proportion had declined to 39 per cent, confirming a relative shift in trade flows towards developing and emerging economies (see Figure 5).

Global value chains (GVCs) have shown resilience

The GVC participation rate serves as an indicator of the level of trade occurring within supply chains. Despite drops during the 2008-09 financial crisis and the COVID-19 pandemic, GVC participation has maintained steady growth, demonstrating that global supply chains are resilient.

Between 1995 and 2022, GVC participation increased at a steady pace, with the forward GVC participation rate (covering exports to partners responsible for downstream production stages) increasing from 15.7 per cent to 20.4 per cent, and the backward GVC participation rate (covering imports for the production of goods and services for export) rising from 19.5 per cent to 28.3 per cent.

In 2022, the total GVC participation rate (comprising both forward and backward participation) reached 48.7 per cent, marking the highest level since 1995 (see Figure 6).

Tariffs and trade costs have declined

There has been a clear downward trend in tariffs since the WTO was established in 1995 (see Figure 7).

The simple average tariff applied by WTO members on a most-favoured nation (MFN) basis — whereby WTO members extend the same trade treatment, including tariff rates and market access, to all other WTO members — has declined from 13.1 per cent to 8.8 per cent.

A similar trend emerges for tariffs applied on a trade-weighted basis, with the average MFN tariff dropping from 7.1 per cent to 3.8 per cent.

Between 1996 and 2022, the trade-weighted average of applied tariffs — based on the assumption of full utilization of preferential tariffs — dropped from 6.9 per cent to 2.0 per cent.

Between 1995 and 2020, international trade costs — including all physical and regulatory trade barriers — decreased by approximately 6 to 10 per cent across various sectors globally (see Figure 8). This reduction in trade impediments contributed to a notable increase in global trade, estimated at around 30 to 45 per cent. Most of the decline in trade costs occurred from 1995 to 2008.

Increased trade has coincided with a sharp reduction in global poverty

Between 1996 and 2022, low- and middle-income economies increased their share in global exports from 17 to 32 per cent. During that time, there was a notable decline in the proportion of these economies’ populations subsisting on less than US$ 2.15 per day. This figure dropped markedly from 38 per cent at the beginning of the 1996 to 10 per cent in 2022, indicating the positive impact of trade on poverty alleviation and economic development within these regions (see Figure 9).

Source: World Trade Organization By Barbara D’Andrea, Christophe Degain, Florian Eberth, Stela Rubínová, Monia Snoussi-Mimouni and Ankai Xu
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