Impact of Red Sea crisis still moderate, could worsen: WTO chief economist

World trade has witnessed a period of turbulence in 2023, as the continued Russia-Ukraine war and the conflict between Israel and Palestine, contributed to destabilising major economies. But with the US and China showing signs of improvement, international trade prospects for 2024 may be brighter, says Ralph Ossa, Chief Economist, WTO. In an e-mail interview with the Business Line, Ossa touches upon important issues ranging from prospects of world trade and the impact of the Red Sea crisis to the WTO’s 13th Ministerial Conference in Abu Dhabi. Excerpts: .

If the Red Sea crisis persists, how do you think the world should react to get through it? Which countries stand to be the worst affected?

Currently, the economic impact of the Red Sea crisis is moderate, thanks to lower freight costs compared to their 2021 peak, moderate demand, strong inventories and available container shipping capacity. If the crisis continues, however, its impact on trade and inflation could worsen significantly, especially in Europe.

In a September 2023 report, the WTO highlighted that after Russia invaded Ukraine in Feb 2022, trade flows between two hypothetical geopolitical blocs grew 4-6 per cent more slowly than trade within these blocs. Is fragmentation a considerable threat to growth in global trade?

The early signs of geoeconomic fragmentation, which we documented in our report, are indeed worrying. Our analysis suggests that full fragmentation could reduce global real incomes by an average of 5 per cent. We advocate instead for re-globalisation—understood as expanding trade integration to more countries, people and issues—as the most effective response to today’s global challenges.

The WTO MC13 starting next week pits developing countries against developed nations in many areas such as fisheries subsidies, food security and e-commerce moratorium. Is the development dimension of the Doha Round redundant now for developing nations?

 The WTO’s consensus-based decision-making process ensures every member’s voice is heard, reinforcing our commitment to addressing development issues. This approach is fundamental to our discussions at MC13 and beyond, highlighting the ongoing relevance of the development dimension.

Without a functioning Appellate Body can the WTO lose its relevance? Is there a way out of the present situation on the face of continued US resistance?

At MC12, members agreed to have a well-functioning dispute settlement system by 2024. We remain hopeful that substantive progress towards this goal will be achieved at MC13 and beyond.