The World Trade Organization (WTO) warned on Monday that uncoordinated, unilateral efforts to tackle the digital economy and low-carbon transition could lead to potential distortions and trade tensions.

In its World Trade Report 2024, it cautioned that fragmentation or the unwinding of trading relationships and recourse to unilateral, rather than multilateral, policies presents a “major risk to progress in reducing poverty and inequality and particularly affects vulnerable groups, such as low-income households, women and MSMEs”.

“Without international trade agreements, large economies might be tempted to raise tariffs unilaterally, reducing the price of their imports at the expense of their trading partners,” the WTO said.

The WTO underscored that unilateral trade measures imposed by importing economies to raise labor standards in exporting economies could lead to trade tensions, stressing the need to strengthen the organization’s deliberative and monitoring functions to promote more inclusive trade.

It also noted that low-income economies could benefit from improved investment facilitation as outlined in the plurilateral Investment Facilitation for Development (IFD) agreement, which India opposes as it falls outside the scope of the global trade body. Over 120 WTO members have backed the China-led IFD agreement.

“The WTO remains a cornerstone for international trade cooperation, and new and prospective rules in areas such as investment facilitation for development, services, domestic regulation and digital trade promise to advance the re-globalization process,” said WTO Director-General Ngozi Okonjo-Iweala.

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Citing the report, she emphasized that open and simplified trade regulations alone are insufficient to ensure inclusiveness between and within economies; they must be complemented by additional policies at both domestic and international levels.

“Fast-growing trade in digitally-delivered services and environmental goods offer exciting opportunities, with digital trade in particular lowering the bar for enabling underrepresented economies, small businesses and women entrepreneurs to connect to international markets,” she said.

The report states that protectionism is not an effective route to achieving inclusiveness, as restricting trade is a costly method of safeguarding jobs for specific groups within society. This approach can increase production costs and provoke expensive retaliatory measures from dissatisfied trading partners.

Trade reforms, costs

The report indicates that unilateral trade reforms in developing economies have, on average, increased economic growth by 1-1.5 percentage points, potentially leading to a 10-20% rise in incomes over a decade. Additionally, reductions in trade costs between 1995 and 2020 contributed to a 20-35% faster income convergence between low- and middle-income economies and high-income economies.

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