SMALLER countries stand to benefit from rules-based trading system as global trade fragments, the World Trade Organization (WTO) said.

“I think we’re all relying on an open, non-discriminatory, and rules-based trading system. And specifically, smaller countries that cannot really assert themselves in a power-based trading system can benefit from that,” WTO Chief Economist Ralph Ossa told reporters at a seminar in Bangkok last week.

He was asked about the impact of trade fragmentation in Southeast Asia and the Pacific.

Mr. Ossa said there are opportunities for countries in the region to host industries that are moving out of big economies like China.

“In terms of your specific region, clearly, there’s an opportunity also in the sense that there are some industries moving out of China… That is what happens if countries get richer and the wages rise… Some industries move out to other destinations. So in that sense, that is an opportunity,” Mr. Ossa said.

“But the big picture is that nobody really gains from this at the end of the day…. You can take the small gains but should be mindful of the big risks,” he added.  

One of the companies that transferred some production outside of China is Apple, Inc., which announced in September that it would move its iPhone 14 production to India.

WTO Director-General Ngozi Okonjo-Iweala has said that trade fragmentation and the decoupling of the global economy into the eastern and western blocs could threaten Southeast Asia and the Pacific.  

“Fragmentation would be costly for all economies, particularly poorer ones. WTO economists estimate that if the global economy decouples into two self-contained blocs, long-term global gross domestic product (GDP) would decrease by at least 5% — worse than the damage from the financial crisis of 2008-09,” Ms. Okonjo-Iweala said.

“Your region, where global supply chains are an important contributor to its economic success, would no doubt be also impacted,” she added.

Meanwhile, Mr. Ossa said there is currently “not much effect” so far from trade fragmentation, but added that global trade is at a “turning point.”

“We do increasingly see policies put in place that kind of accelerating this fragmentation. But then when we look at the actual data and what has happened so far, we do not see that much (effect yet),” Mr. Ossa said.

“It seems that we are at a turning point. We’ve kind of changed course. But we haven’t really sailed for long enough in that direction to really see the impact on the world economy,” he added.

In April, the WTO projected that world merchandise trade volume could post slower growth of 1.7% in 2023 from 2.7% in 2022, but could improve to 3.2% in 2024. — Revin Mikhael D. Ochave