ITC Executive Director speech at the World Chambers Congress (en)

12 juin 2019
ITC Nouvelles
Speech delivered by ITC Executive Director Arancha González at the World Chambers Congress
Rio de Janeiro - Brazil

Thank you for this opportunity to speak to those who make trade happen: the Chambers of Commerce. You are indispensable partners for us at the International Trade Centre as we work hand-in-hand with you to connect micro, small, and medium-sized enterprises to global markets.

This year we are commemorating the hundredth anniversary of the International Chamber of Commerce. When business leaders from Europe and the United States gathered in Atlantic City to found the ICC in 1919, they had learned lessons that are of direct relevance to us today as we contemplate the headwinds facing global trade.

The ICC’s founders had watched the first wave of modern globalization – the era of the telegraph, electricity, and the steamship – crumble in the trenches of the Western Front. Economic ties had not prevented geopolitical tensions between the United Kingdom and a rising Germany from escalating into war.

It was no accident that the ICC’s motto became ‘world peace through world trade.’

As we know, the quarter-century after 1919 saw neither peace nor prosperity. Beggar-thy-neighbour trade and financial policies played a role here, deepening the misery of the Great Depression and helping to empower political extremists. Only after the Second World War, in 1945, did we start to move towards the ICC’s vision.

A progressively more open global economy was anchored in multilateral institutions like the General Agreement on Tariffs and Trade, the forerunner of the WTO. Governments complemented the new international order with policies at home to ensure that the fruits of trade and economic activity were widely shared across society. The system has not been perfect, but it has worked.

The scourge of war is still with us, but we have had seventy years of peace. Meanwhile, predictably open global markets have enabled unprecedented prosperity, even though this prosperity has not extended to all countries and communities.

Developing economies were able to turbocharge growth by tapping into external sources of demand, inputs, and knowhow. New communications technologies accelerated this process, making it possible for goods and services production to spread across multiple locations, bringing investment and jobs. Consumers in developed countries saw their purchasing power boosted, freeing up resources for new businesses and innovations. The headwinds now facing the rules-based trading system threaten these gains.

When you read today’s headlines tariffs and export restrictions, you don’t need a vivid imagination to think how familiar they would have sounded to the ICC’s founders. We need to remember the lessons they learned in the first half of the twentieth century. Because we cannot afford to start re-learning them in the twenty-first.

The global economy risks becoming a victim of its own success. By enabling rapid growth in developing countries, most significantly China, it contributed to rebalancing economic and hence geopolitical power away from the formerly dominant United States and other advanced economies. But the rising geopolitical rivalry between the US and China now threatens the rules-based trading system.

In addition to the prospect of systemic shifts in the global business environment, governments, companies of all sizes, and individuals must today grapple with three simultaneous revolutions:

• First, a digital revolution that is fundamentally changing the way we work, produce, and trade. The fourth industrial revolution of intelligent machines and devices that seamlessly integrate digital and physical technology poses risks as well as opportunities for job creation. Tech-enabled business models have similarly created many jobs while destroying others. Five years ago, global cross-border e-commerce was worth $236.0 billion dollars. By next year, it is expected to approach the trillion-dollar mark.

• Second, a social revolution. Economic insecurity drives angry politics. Sluggish growth, unequally shared, has left many people in advanced economies feeling insecure about their own economic prospects, and those of their children. Even in developing countries where growth has been faster, the biggest gains have gone to the better-off. The mismatch between expectations and reality has fuelled voter dissatisfaction across the world.

• Third, an environmental revolution: climate change and other kinds of environmental degradation are exacerbating existing inequalities. Rich countries have resources to invest in mitigating risks associated with more frequent natural disasters. Poor countries do not. And yet Mozambique was hit by two devastating cyclones only weeks apart in March and April. For a middle-income country like Brazil, the recent multi-year drought was a threat to the country’s vital agricultural sector as well as to hydroelectric power for the rest of the economy.

The fact is that a breakdown of multilateral cooperation would make it harder, not easier, for people to cope with these revolutions. Whether in the world’s poorest countries or its richest, if global markets fracture, it will make things worse, not better, for the people who have been left behind by trade and technology.

What can governments and multilateral agencies can do to help businesses of all sizes respond to ongoing changes? I will focus on two points:

One: Promote economic inclusion and environmental sustainability, at home and abroad.
Two: Develop a positive-sum reform agenda for multilateral cooperation on trade.

Chambers of commerce, as key intermediaries between businesses and governments, have a critical role to play on both fronts. The inclusion and sustainability agenda involves a combination of economic empowerment and social policy. On the domestic policy side, governments must invest in active labour market policies and skills building to equip people to thrive amidst trade and technological change.

If trends continue to favour rising wealth and income inequality, tax and redistributive policies will be crucial to ensuring that most sections of society feel that they are benefiting from economic growth. To curb climate change we must substantially raise the price of carbon. But we must also ensure that the burden of doing so does not fall on those least able to bear it.

On the empowerment side, countries cannot achieve their full growth potential, or make that growth inclusive, unless MSMEs and women are full participants in the economy. MSMEs because they account for the vast majority of firms and jobs, making them essential vehicles for inclusive growth. And women, because no society can expect to move forward while leaving half of its members behind.

ITC’s experience shows that well-targeted development assistance can play an important catalytic role in supporting MSMEs in developing countries to attract investment and break into international markets. Chambers of commerce are key parts of the enabling ecosystem for small businesses. They help their members overcome informational constraints and other issues preventing them from connecting to buyers and suppliers both at home and abroad. They can help businesses diversify product portfolios and learn about climate change adaptation and making business practices more sustainable. Chambers can help women-owned companies tap into new business networks. They are valued partners in our SheTrades initiative to empower women entrepreneurs in the world economy. ITC is working with chambers from Mongolia to Zambia to help them analyse their internal processes and maximize their impact for the businesses they support.

As for the multilateral reform agenda, there are essentially two potential futures: cooperation and order, or chaos and uncertainty. In the first scenario, the global economy would stay broadly open. Businesses would have greater predictability about when and where to invest, and the ability to source based on price and quality. The trade system could be used to mediate and contain the geopolitical rivalry between the US and China. New rules would have to be developed for new aspects of cross-border business activity, such as digital flows.

None of this will be easy. But compare it to the second, uncooperative scenario. Here, even in the short term, doubts about future market access would weigh on investment decisions. In the medium term, economies could start to decouple from each other. Productivity would fall, as would future income and output growth. Politics would grow angrier. It could lead us down paths that we know are better avoided.

Businesses and chambers can play an influential role in framing the choices facing governments. And there is more businesses themselves could do, particularly bigger firms. They can broaden sourcing to include more SMEs and women-owned businesses, and work with suppliers to help them upgrade sustainability practices. And frankly, multinationals should raise their voice against tax competition and aggressive tax optimisation. Expensive social policy is critical to preserve support for open markets. The burden cannot be born exclusively by taxes on consumption and labour income.

As for ITC, whichever path the global economy takes, we will continue to do what we have always done: work to empower MSMEs to make the most of whatever market access opportunities they have. But we’d all do well to remember why the ICC and the multilateral trading system were created in the first place.