Current trends towards increased trade regionalisation might be reversed in the years leading up to 2035, with multilateral trade relationships potentially gaining in importance, a recent World Trade Organisation (WTO) paper has shown.

Through the construction of fully traceable scenarios based on assumptions grounded in relevant literature, the paper, ‘Simulating world trade in the decades ahead: driving forces and policy implications’, isolated the relative impact of key economic drivers.

The paper found that a major trend in trade policy had been towards the conclusion of preferential trade agreements, particularly at a regional level.

“In certain regions, particular Asia, intraregional trade has persistently increased over the past two decades in both relative and absolute terms. Our model simulations until 2035, however, do not foresee this trend [continuing] unabated,” the WTO stated in the report.

The WTO said, in considering some of the current largest free-trade agreements, the relative share of trade taking place within these regions was expected to decline under a ‘high’, or positive, scenario, while no major change was expected under a ‘low’, or negative, scenario.

“The share of trade within the European Union would be particularly affected, falling more than a half, from 22% to just 9% of world trade, even though in absolute numbers intra-trade volumes would still increase.

“Similarly, the share of trade within the North American Free Trade Agreement in global commerce would decline by more than half by 2035. By the same token, assuming no further preferential trade integration [took place], extraregional trade would vastly increase in importance, in both absolute and relative terms, accounting for 70% at present and more than 85% of world trade in 2035 under the ‘high’ scenario,” the WTO explained.

The organisation added that while these predictions gave strong support to further economic integration at the multilateral level, the possibility of intensified and enlarged preferential trade arrangements in the future could not be discarded, especially in light of certain “megaregional" deals already being under discussion today.

Further, the paper also found that individual developing countries, notably China, had a lot riding the future economic and trade policy outlook.

“We find that the stakes for developing countries are particularly high [as] the emergence of new players in the world economy, intensification of South-South trade and [the] diversification into skill-intensive activities may only continue in a dynamic economic and open trade environment,” the WTO noted.

Further, the paper also found that technological progress was likely to have the biggest impact on future economic developments around the globe, while population dynamics would also be influential.

“For some countries, upskilling will be crucial, for others labour shortages may be addressed through migration,” the WTO said, adding that several developing countries would benefit from increased capital mobility, while others could only diversify into dynamic sectors if trade costs were further reduced.