Time to Invest in Multilateralism (en)

31 octobre 2019
ITC Nouvelles
Speech delivered by ITC Executive Director Arancha Gonzàlez at the launch of the Danish Forum on Fair and Sustainable Trade, Copenhagen 29 October 2019

Minister Jeppe Kofod, thank you for your invitation to discuss how to shape a good trade policy in the midst of the current tectonic shifts.

We all know that very famous proverb, ‘Bad is never good until worse happens’.

The world economy is slowing down. The IMF has recently predicted that global growth in 2019 is at its slowest pace since the 2008 financial crisis with GDP growth at 3% down from the July forecast of 3.2%. It has also highlighted that if the current US-China conflict continues and tariffs remain unabated, we could see a reduction in global economic output by close to 1% in 2020. This could translate into a loss of US$700 billion, the equivalent of both Denmark and Finland being removed from the economic map.

But if things do not improve- the ‘bad’ of today will be seen as ‘good’ in retrospect. Foreign direct investment fell by 13 per cent last year, to the lowest level since the 2008-2009 financial crisis and this year is looking even more troubling with a 20% decrease in investment in the first 6 months of the year compared to the last half of 2018. And trade is looking no better with a downgrade of trade growth for 2019 and 2020.

Add to this the dip in business confidence, the rise in global protests and the continued strain on the ecological integrity of this planet and we can understand why the word ‘recession’ is being used more frequently. A recession in 2020 would indeed be ‘worse’. For the global financial systems have not yet even recovered from the 2008 financial crisis and therefore the margins of manoeuvre and adjustment will simply be weaker.

There are many causes for why we are here today. And trade is often the most visible form of these tensions. The UK is setting sail from Europe into uncharted seas and Brexit is understandably causing uncertainty. Cool heads must prevail in the EU and US after the Boeing-Airbus decision if another damaging tariff battle is to be avoided. There is uncertainty in trade between Japan and Korea. But underlying all of it are geo-political tensions around the US and China. Calling it just a trade war is a bit of a misnomer- it is in reality a technological and innovation race. For we can’t forget that the genesis of this tariff escalation was premised on US’s Section 301 investigation targeting these technology industries in China with the ensuing response by China. After all, the facts speak for themselves - the US and China together account for 90% of the market capitalization value of the world’s 70 largest digital platforms, while Europe’s share is 4% – and Africa and Latin America together is 1%.

Like with wars of any kind, one side may just lose less but there are hardly ever winners. We only have to watch that famous Danish TV series 1864 to know this. All countries and regions are today affected by the slowdown: farmers in America are hurting; exporters in Europe are hurting; investors in China are hurting; small producers, especially in poorer countries, are hurting. When there is instability, investment stalls. And when investors become more risk averse, those most affected are often at the base of the pyramid. There is less consuming, and hence less buying, therefore less producing and less potential for new job creation. And when there are less jobs available it is often women and youth that are most affected.

Today we know what is broken; we know what we are breaking; it is now time to invest in multilateralism. And we need countries like Denmark as part of the European Union to step forward and do just that. We need to reclaim multilateralism, not out of naivety or weakness, but out of effectiveness. Unilateralism simply does not work. But recommitting to multilateralism must also mean a readiness to reform it to ensure it works in a changed world.

And this is where I welcome the trade-development nexus and the bold goals of the new Danish government to put fairness at the heart of policy. Your ambition to become known as a nation of green entrepreneurialism does you credit, as does your commitment to “a fair direction for Denmark”.

We know trade drives prosperity in principle. But we don’t just want trade at any cost - we want ‘good trade’, one that is more inclusive, more sustainable and more responsible. We also know that economic fairness isn’t an automatic outcome of commerce as we see in many parts of the world with gross and growing inequalities, environmental breakdown and a growing digital divide. It is not enough to have a great trade policy or trade agreements. To make trade work we need strong domestic policies: social safety nets, reskilling and smart investment in infrastructure, especially digital connectivity.

Denmark has done this. You have showed that an outward looking policy of investing in multilateralism is not a threat to a well-functioning domestic economy. By investing close to 2% of your GDP in active labour market policies you ensure that no worker is left behind whether by technological progress or by the competition that follows more open markets. On the contrary with the global value chains that bind the trading system being shorter than we think, a mutually-beneficial multilateral system – not a sequence of self-defeating unilateral decrees – is the only effective solution to common challenges.

In addition to a major geopolitical shift, the world is experiencing three simultaneous revolutions.

A digital revolution is fundamentally changing the way we produce, work, consume and trade. Technology has reshaped the way countries interact as well as how companies move goods, services and information across borders. In 2007 Apple launched its first iPhone; today, one in three people across the world owns a smart phone. Africa, with its growing youth population is part of this revolution with 15% of the continent’s 400 million mobile-phone subscribers owning a smart phone. We have seen global e-commerce expand at a rate of 20% a year, with some countries hitting 50%.

But with such dramatic progress it is easy to forget that more than half the world’s population is not yet connected to the internet. While internet penetration reaches 95% in Europe, in Africa it is only around 36%. If we are to achieve the United Nations 2030 Sustainable Development Goals, this has to change. The benefits of new technologies such as blockchain must be shared across the global value chains. In the economic geography of the digital economy, the US and China alone account for 75% of all blockchain patents, 50% of global spending on Internet of Things, and over 75% of the world market for public cloud computing. Technology driven data is the new gold- but we have to ensure that all countries and communities can benefit and see themselves reflected in this.

The expansion of e-commerce is possibly the most visible and immediate of these opportunities. A recent step in the right direction was taken in January, when a group of WTO members launched talks on rules to govern global e-commerce. This matters, for the future of global commerce and it is important for all countries that they have a stake in the discussions and eventual outcome. In Africa, e-commerce has the potential to create as many as three million new jobs by 2025 – much needed jobs for young people, women and people in rural communities. Yet e-commerce start-ups face many obstacles, including low consumer digital trust, fragmented or weak regulatory frameworks, poor infrastructure and low regional integration. It is hopeful that African governments have mandated the development of a digital economy development strategy by February 2020. This is an essential complement to the African Continental Free Trade Area.

Second is an ecological revolution, with climate change and other kinds of environmental degradation exacerbating existing inequalities. This is why I applaud the pledge made by the government to introduce binding decarbonisation goals and strengthen its 2030 target to reduce emissions by 70% below the 1990 level. This is ambitious but it is both the right thing and the smart thing to do.

The Intergovernmental Panel on Climate Change (IPCC) has warned us that emissions must start falling now if we are to have a chance of achieving the goal of holding the rise in global temperatures to 1.5 degrees Celsius set by the 2016 Paris agreement. And this is not just a matter of numbers. As Barbados Prime Minister Mia Amor Mottley recalled at ITCs recent Trade for Sustainable Development Forum, temperature increases must be kept to less than 1.5 degrees if small coastal states are to survive.

At the centre of the green transformation of our economies is the investment community. Their decisions to divest from highly polluting industries would send a powerful signal to markets and help us get closer to the goals enshrined in the Paris Agreement.

Trade can – must - be part of the solution. Several trade policy options, short of the currently unavailable global price for carbon, are feasible. From facilitating trade in clean technologies, to discouraging trade in polluting goods or services through tariffs, taxes or even bans, to promoting the spread of sustainability standards and norms. With global value chains, the environmental effects of consumption are often felt far and wide but GVCs can also be “transmission routes” of environmental efficiency. On the demand side, markets for sustainable goods are expanding. Global organic food market has more than quadrupled over the past 15 years. A proliferation of certification and labelling schemes point to growing consumer pressure. According to ITC research 92% of retailers in France, Germany, Italy, the Netherlands and Spain expect sales in sustainable products in fashion, food and electronics to increase in the next five years.

And we can choose to invest in green technology. When Vestas decides to invest in Africa’s biggest wind farm in Kenya or when it decides to invest in what will be West Africa’s first utility-scale wind power project in Senegal, it shows the way. And if we can ensure local suppliers are connected to this network, the economic benefits would spread.

In fact the Africa Continental Free Trade Agreement will allow solutions in energy, food, medicines, green products and services and many more to find ways to scale up beyond domestic borders. Investment will find friendlier commercial conditions in Africa than ever before.

Denmark has ideas, technology and solutions to combat this ecological crisis that can be shared, traded and invested in other countries. With Denmark’s support, ITC is doing just this. We are helping developing country firms to green their value chains through the establishment of Trade for Sustainable Development Hubs in developing countries; we are supporting local micro, small and medium-sized enterprises to understand, navigate and meet public and private standards, and we are helping connect women owned SMEs to green investors. This is where the support of Denmark to the ITC is making a real difference on the ground.

The third is a social revolution. Economic insecurity drives angry politics. Sluggish growth, unequally shared, has left many people 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 is fuelling voter dissatisfaction across the world. Not all of the causes of these protests are the same, but the expectations are similar: fairness, transparency, and equality.

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 the richest, if global markets fracture, it will make things worse, not better, for the people who have been left behind by trade and technology.

A recommitment to multilateralism must also mean a recommitment to the WTO as the seat for crafting, monitoring and adjudicating trade rules.

We all know the current state of the Appellate Body. The WTO is at risk of degrading what is one of its pivotal pillars- to settle trade disputes. I welcome that in this period of uncertainty some members such as the EU, Canada and Norway have come together to provide an alternative. But this is a short term solution to an underlying problem that must be addressed through a negotiation between its members. As is the case of e-commerce where a large group of WTO members is negotiating rules for this growing form of international trade. Or on investment facilitation. Or on fishery subsidies, the acid test of WTO members’ commitment to multilateralism.

The trading scene has changed in the last decades. Issues such as fossil fuel subsidies have risen to prominence and require new disciplines. Old friends such as subsidies to manufacturing and services require serious reforms in a more technologically driven economy. Agriculture markets need to better align to our goals of sustainable development. A system of black and white membership - rich and poor countries – needs today a bit more of a nuanced approach, more technicolour! We need to re-think whether exclusions or derogations will help the poorest develop through trade, or whether we need to find ways to support paths towards convergence. We need to ensure trade rules are crafted bearing in mind that 98% of businesses are SMEs including women entrepreneurs. In a nutshell, WTO members need to get back to work in Geneva. The alternative is a more fragmented world economy, less efficient, less productive, providing less opportunities to advance global prosperity.

Supporting and reforming multilateralism is the only way to shared prosperity and progress. Denmark has always been a leader in this area within the European Union. You are needed now more than ever.

Thank you