Worth Reading : Vulnerabilities, resilience in global trading system examined in World Trade Report 2021

The 2021 edition of the WTO’s World Trade Report examines why the interconnected global trading system is both vulnerable and resilient to crises such as the COVID-19 pandemic, how it can help countries to be more economically resilient to shocks, and what can be done to make the system better prepared and more resilient in the future. The flagship publication, launched on 16 November, notes the need to address these issues in light of the prospect of increasingly frequent and more intense natural and man-made disasters.

The report conveys three main messages: first, today’s hyper-connected global economy, characterized by deep trade links, has made the world more vulnerable to shocks, such as natural and man-made disasters, but also more resilient to them when they strike.

Second, policies which aim to increase economic resilience by unwinding trade integration – for example, by re-shoring production and promoting self-sufficiency – can often have the opposite effect, effectively reducing economic resilience. And third, strengthening economic resilience will require more global cooperation, both regionally and multilaterally.

“While the WTO already contributes to economic resilience in important ways, it can and must do more, as we confront a future of increasing natural and man-made risks and disasters,” WTO Director-General Ngozi Okonjo-Iweala said in her foreword to the report. “As we have seen with pandemic-related trade measures, enhancing transparency and predictability is important to provide policymakers and businesses with the information they need to make informed decisions.”

“Ongoing negotiations at the WTO on services, investment, agriculture, electronic commerce and micro, small, and medium-sized enterprises could create further opportunities for inclusive trade and diversification, making economies more resilient in the future,” she added. “Reinvigorated international cooperation, not a retreat into isolationism, is the more promising path to resilience.”

The challenges ahead are many and varied. These include climate change, which is driving increases in extreme weather events, such as droughts, cyclones and floods, human encroachment on animal habitats, which can increase the risks of spreading zoonotic diseases and sparking pandemics, and increasing incidences of cyber-attacks and data fraud.

Rising inequality, increasing economic fragility, and growing political uncertainty and geopolitical tensions are also augmenting the risk of conflicts and violence. These risks can interact with each other and create a cascading impact on the environment, the economy and society.

The report notes that the ongoing health and economic crisis caused by the COVID-19 pandemic has been a massive stress test for the world trading system, delivering unprecedented disruptions to global supply chains and increasing trade tensions among countries.

However, the trading system has proved itself more resilient than many expected at the outset of the crisis. Although the pandemic initially led to a severe contraction in international trade flows, supply chains have rapidly adapted, goods such as essential medical supplies have continued to flow across borders, and many economies have gradually begun to recover.

Trade also plays a key role in maintaining access to global goods and services; for example, it enables countries to cope with shocks by switching suppliers when crises disrupt established supply relationships, whether domestic or foreign. Firms that participate in trade, especially exports, have a greater likelihood of surviving economic downturns due to their higher productivity, on average, than firms in non-exporting sectors as well as their tendency to have access to more diversified markets.

The report states that policies aimed at increasing economic resilience by re-shoring production, promoting self-sufficiency and unwinding trade integration can often have the opposite effect, effectively reducing economic resilience. Such policies almost inevitably render national economies less efficient in the long run, as they ultimately drive up prices of goods and services and restrict access to products, components and technologies.

More trade cooperation at the multilateral or regional level, backed by strong international trade rules, can support the various domestic strategies deployed to avoid and mitigate risks and to prepare for, manage and recover from shocks, the report notes. To this end, reinforcing and building on the WTO’s existing cooperation with international and regional organizations will be critical while promoting coordination, coherence and mutual supportiveness across areas ranging from risk prevention, disaster relief and public health to climate change, environmental protection and financial stability would further support resilience in the face of future crises.

WTO members can do more to foster economic resilience by enhancing existing WTO transparency mechanisms regarding trade measures, clarifying the appropriate use of export restrictions on critical materials or intermediary products during crises, enhancing coordination of public procurement policies for critical goods and services, and advancing work on electronic commerce, micro, small and medium-sized enterprises, and women’s economic empowerment to create new opportunities to make trade more inclusive and diversified and thus more resilient.


New publication examines global value chain resilience, shift beyond manufacturing sector

Global value chains (GVCs) have proven to be resilient in the face of the challenges posed by the COVID-19 pandemic as well as environmental and geopolitical shocks according to a new report co-published by the WTO, the Asian Development Bank (ADB) and three other institutions on 16 November. The report details recent trends in GVCs, looking in particular at the increasing role of services and intellectual property, and sheds light on their importance for global economic recovery.

Early evidence emerging from the ongoing pandemic indicates that GVCs have played a key role in supporting economic recovery and are evolving in important ways, according to the “Global Value Chain Development Report 2021: Beyond Production,” co-published by the WTO, the ADB, the Research Institute for Global Value Chains at the University of International Business and Economics, the Institute of Developing Economies, and the China Development Research Foundation. There has been no generalized reshoring of production in response to the pandemic, the report states, and GVCs have shown resilience, after initial disruptions, in addressing the needs for food and essential medical goods.

“As COVID-19 recedes, GVCs will no doubt be a major influence in the recovery to come. This recovery must be used to reinvigorate a trading system that serves and improves the lives of everyone,” WTO Director-General Ngozi Okonjo-Iweala and ADB President Masatsugu Asakawa note in the foreword of the publication. “Understanding where, in these chains, value is created and how it is shared among its actors is central to ensure that everyone obtains a fair share in the gains from trade.”

The report breaks new ground by providing analysis on GVCs beyond manufactured goods, detailing how value added in GVCs is increasingly generated through intangible products, such as services and intellectual property. The rise of services GVCs offers a new opportunity for developing countries to play a more active role in world trade and to boost economic growth, the report notes. It also explores the role of GVCs in spurring technological innovation.

Among the recent trends in GVCs highlighted by the report is the growing contribution of developing countries, particularly Asian economies, which have dramatically increased their share of GVC trade.

Moving forward, governments must consider increased investment in areas such as digital infrastructure and the training of workers to make GVCs more effective and more resilient not only to pandemics but also geopolitical, environmental and cyber risks. The report recommends outward-oriented strategies that are environmentally sustainable and market-oriented, and committed to labour protection, multilateralism, peaceful exchange, non-discrimination, reciprocity and transparency.