William Krist's Blog, page 52

Global Trade Update

How are some of the world’s major economies faring?

Official statistics for some of the world’s major trading economies further indicate the extent of the downturn in international trade caused by the COVID-19 pandemic. During 2020, none of the major economies has been spared.

China’s trade patterns have diverged from other economies. After falling in the early months of the pandemic, Chinese exports stabilized in Q2 2020 and rebounded strongly in Q3 2020, with year-over-year growth rates of almost 10 per cent. Overall, the level of Chinese exports for the first nine months of 2020 was comparable to that of 2019 over the same period. On the import side, the Chinese demand for imported products recovered following a decline in Q2 2020. Contrary to other major economies, Chinese imports stabilized in July and August then grew substantially in September.

Regional trade trends

The sharp and widespread decline in international trade in Q2 2020 has been similar for developing and developed countries. However, trade in developed countries appears to have fallen marginally faster, both in relation to imports and exports. Trade among developing countries (South-South) has been relatively more resilient with a decline of about 16 per cent in Q2 followed by a decline by 8 per cent in July.

No region has been spared from the decline in international trade in Q2 2020. However, trade in East Asia appears to have fared relatively better than in other regions. This trend is even more evident for the month of July. On the other hand, the sharpest decline has been for the West and South Asia region, where imports have dropped by 35 per cent, and exports by 41 per cent. As of July, the fall in trade remains significant in most regions.

Global trade at the sectoral level

Economic disruptions brought about by COVID-19 have affected some sectors significantly more than others. In Q2 2020, the value of global trade in the automotive and energy sectors was about half of what it was in Q2 2019. Trade also declined significantly in chemicals, machineries, metals and ores, and precision instruments. On the other hand, imports increased in office machinery and textiles and apparel. Such increases are linked to the COVID-19 pandemic as these sectors include home office equipment and protective equipment such as masks.

The data for July and August 2020 indicates similar patterns. The value of international trade in the energy and in the automotive sectors was still substantially below its levels of 2019. On the other hand, increases in demand of home office equipment and personal protective gear resulted in positive growth rates for trade in the communication equipment, office machineries, and textiles and apparel sectors.

To download the full report, please click here.

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U.S. Farm Support: Outlook for Compliance with WTO Commitments, 2018 to 2020

The long-term objective of the World Trade Organization’s (WTO’s) Agreement on Agriculture (AoA) is to establish a fair and market-oriented agricultural trading system. The principal approaches for achieving this goal are, first, to achieve specific binding commitments by all WTO members in each of the three pillars of agricultural trade policy reform—market access, domestic support, and export subsidies—and second, to provide for substantial progressive reductions in domestic agricultural support and border protection from foreign products.

As a signatory member of the WTO agreements, the United States has committed to abide by WTO rules and disciplines, including those that govern domestic farm policy as defined in the AoA. Since the WTO was established on January 1, 1995, the United States has generally met its WTO commitments with respect to allowable spending on market-distorting types of farm program outlays.

What Is the Issue?

The U.S. government provided up to $60.4 billion in ad hoc payments to agricultural producers cumulatively in 2018, 2019, and 2020, in addition to existing farm support. These payments have raised concerns among some U.S. trading partners, as well as market watchers and policymakers, that U.S. domestic farm subsidy outlays might exceed its annual WTO spending limit of $19.1 billion in one or more of those three years.

Compliance with WTO commitments is based on the total spending under all U.S. farm support programs for each crop year, but subject to certain exemptions (described below). From 1995 through 2017, the United States has met its WTO commitments; however, this compliance has relied on use of the available exemptions in several years to exclude certain domestic support spending from counting against the spending limit.

The United States notified an average of $15.4 billion in annual domestic farm support (prior to exemptions)—or cumulatively, $46.1 billion—during the recent three-year period from 2015 to 2017. New spending of up to $60.4 billion under U.S. government ad hoc payment programs— that the United States may have to report, and which would be in addition to the traditional farm support programs—could more than double the amount of annual domestic support subject to the spending limit in 2018 through 2020. This new ad hoc spending includes the 2018 Market Facilitation Program (MFP), valued at $8.6 billion; the 2019 MFP, valued at $14.5 billion; the two 2020 Coronavirus Food Assistance Programs(CFAP-1 and CFAP-2), valued at up to $16.0 billion and up to $14.0 billion, respectively; and the 2020 Paycheck Protection Program’s (PPP’s) forgivable loans to agricultural interests, valued at $7.3 billion.

CRS analysis (described in this report and based on available data) indicates that U.S. domestic farm support outlays were likely within the agreed-to WTO spending limit of $19.1 billion in 2018, but could exceed the limit in 2019 depending on the U.S. Department of Agriculture’s (USDA’s) notification strategy. In 2020, U.S. non-exempt domestic support outlays appear likely to surpass the spending limit if a typical notification strategy is used by USDA.

To download the full report, please click here. 

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Randy Schnepf is a Specialist in Agricultural Policy at the Congressional Research Service. 

The Supply Chain Ripple Effect: How COVID-19 is Affecting Garment Workers and Factories in Asia and the Pacific

To tackle the COVID-19 crisis, the ILO has proposed a Policy Framework with four pillars, based on international labour standards: (i) stimulating the economy and employment; (ii) supporting enterprises, jobs and incomes; (iii) protecting workers in the workplace; (iv) relying on social dialogue for solutions (see ILO, 2020h). As the pandemic continues to take its toll on the health as well as the economic and social wellbeing of the world population, the continued mobilization of resources and action along those four pillars remains key to safeguard jobs and livelihoods, including those in the garment sector. Continued support for enterprises, as well as the extension of social protection to all, is key to mitigate adverse impacts of the crisis in the garment supply chain. Solutions need to be found to address the needs of all workers in the sector, including women which make up the majority of garment employment.

The ILO has also provided a variety of tools for support to its constituents (see ILO, 2020o for more details). The ILO–International Finance Corporation Better Work programme is monitoring the situation in its participating countries, and provides support to workers, factories and brands in addressing the crisis and protecting workers. The ILO has also convened forums for industry dialogue, discussion and exchange, as well as publishing a series of practical factory guides aimed at supporting business resilience through improved cash flow management, income and market diversification, workplace communication, and safety and efficiency in production (ILO, 2020p).

The ILO facilitated and supports the Call to Action, an international multi-stakeholder initiative which aims to spur industry-wide action to protect workers’ incomes, health and employment and support employers to survive during the COVID-19 crisis, and to work together to establish sustainable systems of social protection for a more just and resilient garment industry. The Call to Action is a positive example of global industry-wide collaboration, but it will need ongoing commitment and coordinated stakeholder action to be effective in achieving its intended objectives.

The decline in consumer demand for garments as well as the requirement to close workplaces to curb the spread of

the virus, which resulted in a sharp decrease in garment production and employment, have charted a downward trajectory steeper than the one seen during the 2008-09 financial crisis. The depth of those declines and the speed and shape of the eventual recovery in the sector will likely not be (fully) visible until 2021 or 2022. Researchers will also require more time and data to measure whether government and industry interventions have been effective and sufficient to alleviate the crises.

Given the scale of the pandemic and impact to date, the global garment industry may in the coming years face a structural realignment, shaped in part by trends that were already disrupting the sector prior to 2020. Public calls for a rethink of garment supply chains, towards greater equality, inclusivity and sustainability, are becoming louder, while technological innovation is reshaping the possibilities for how and where production takes place, and the role the factory workforce plays in this process. This reconfiguration of the industry should also take into account long-standing challenges and address the need for investment in transportation and communication infrastructure, reliable power generation, education and skills development, all of which restrict the move of the industry into higher value-added products and services. More research is needed to fully understand the potential scenarios emerging as a result of the continued disruptions brought about by the pandemic.

It remains to be seen as to whether the post-pandemic global garment industry will undergo a fundamental restructuring to forge a new – and possibly more sustainable and resilient path – or whether it will revert back to a largely ‘business as usual’ scenario. Whichever trajectory the industry now takes, workers and enterprises will be on the frontline of its impact.

It is ultimately upon national governments, workers and employers to work together with other industry powerbrokers to find collective solutions for a human-centred future of the industry – a future that can deliver on its promise to be a transformative force for social and economic good across Asia and the Pacific.

To download the full report, please click here.

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© International Labour Organization 2020

Trade and Development: Canadian Tariffs and the Least Developed Countries

The Kananaskis Initiative was gazetted on the same day as the Conflict Diamonds Initiative, January 1, 2003. The Conflict Diamonds Initiative received more attention because it was one of Canada’s first Security Council initiatives; but the market access initiative has been arguably more far reaching because it led to long lasting growth and trade development in a handful of countries. That there is more to be done is clear, but the achievement is notable.

Over the past seventeen years, exports from several LDCs to Canada have grown and diversified, changing the profile of Canada from a traditional market for unprocessed minerals and raw food to a destination for imports of low cost, labour intensive manufactured merchandise. Bangladesh and Cambodia now rank after China as highest exporters of apparel to Canada, several others show continued growth in exports to the Canadian market.

Canada supports the LDCs in many ways including a large military and development presence in Afghanistan, in rebuilding Haiti, in promoting economic growth in Bangladesh and Ethiopia and so on. Further reducing or eliminating tariffs on LDC exports, particularly for small exporters to Canada is an important part of this work, but it is often a forgotten issue.

Critics of the LDC liberalizations may argue that just a few LDCs benefitted; supporters will maintain that tariff reductions usually benefit just a few countries. Both are right; more could be done to help LDC exporters in the 47 LDCs take advantage of the Canadian market, which is now wide open to them. More could be done to enable small exporters and producers benefit from the LDCT.

But in the absence of multilateral initiatives to open advanced country markets to first tier manufactures from the poorest countries, and with the failure of the Doha Round of Multilateral Trade Negotiations, the results of the LDCT liberalizations are a credible, and important contribution to development through trade.

To download the full paper, please click here.

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Fauzya Moore is a senior advisor on trade and development in Canada’s Department of Foreign Affairs, Trade and Development.

© Fauzya Moore, 2020

Short Answers to Big Questions on the WTO and the Environment

The world economy has changed profoundly over the past decades, as there has been a sharp increase in population and a near tripling of average income since 1960. During this period, our economies have become ever more integrated due to advances in communication and information technologies, along with lower barriers to global trade and investment.

These developments have made it possible for production to be increasingly organized into global value chains, where goods are designed in one country, made from parts built in several other countries, assembled in yet another country, and then shipped to consumers around the world.

By boosting growth, trade has contributed to an unprecedented reduction of poverty levels. In fact, the United Nations (UN) met its goal of halving extreme poverty five years in advance of its 2015 deadline. But as trade has grown, concerns have also been voiced about its effects on the environment and, more generally, about the capacity of nature to cope with the environmental effects of economic activity.

To download the full report, please click here.

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© World Trade Organization 2020

The TRIPS Agreement and COVID-19

INTRODUCTION

This note sets out the role and key contributions that the global IP system, including its policy options and flexibilities as implemented in domestic law, can make to address COVID-19. It also provides an overview of measures taken by WTO members within this framework since the start of the crisis.

The WTO’s TRIPS Agreement is the most comprehensive multilateral agreement on IP. It provides for certain basic principles (such as non-discrimination), situates the IP system in terms of promoting innovation and disseminating technology for the public’s welfare, sets forth minimum standards of protection in respect of each of the areas of IP covered by the TRIPS Agreement, contains provisions that deal with domestic procedures and remedies for IP enforcement, and makes disputes between members about respect for TRIPS obligations subject to the WTO’s dispute settlement procedures.

The global IP system provides a framework in which urgently needed innovation in relation to COVID-19 can be encouraged, shared and disseminated. Innovation in health can be seen as a cycle: it covers the stages from initial invention to the supply to the public of a product or service. Within a balanced IP system, the exclusive rights conferred by IPRs can serve as an incentive for investment at each stage of the innovation cycle, and as a mechanism for combining and trading in technology inputs from different sources. Policy choices with respect to the design and implementation of the IP system made at the regional and national levels, along with the management of IP, can also directly influence research and development (R&D) outcomes and access.

Article 7 of the TRIPS Agreement describes the objectives of the IP system in terms of a balance of rights and obligations. The objectives refer to the protection and enforcement of IPRs in a manner which contributes to “the promotion of technological innovation”, “the transfer and dissemination of technology” to the mutual advantage of both “producers and users of technological knowledge”, and also “social and economic welfare”. Article 8 states that members may adopt measures necessary to protect public health and nutrition and to promote the public interest in sectors of vital importance to their socio-economic and technological development that are consistent with the provisions of the TRIPS Agreement.

The Doha Declaration on the TRIPS Agreement and Public Health, a landmark declaration adopted at the WTO Ministerial Conference in 2001, reaffirmed the objectives and principles of the Agreement as guidance for the implementation of TRIPS provisions in a manner that is responsive to public health objectives. WTO members affirmed that the TRIPS Agreement “can and should be interpreted and implemented in a manner supportive of Members’ right to protect public health and, in particular, to promote access to medicines for all”. The Doha Declaration also clarified certain policy options, or “flexibilities”, within the framework of the TRIPS Agreement. It is thus a well-established principle that the TRIPS Agreement can be interpreted and implemented in line with public health policy objectives and that it provides wide latitude for members to take action to protect public health.

While much public health policy attention has focused on the patent system as a key element of the system for innovation and dissemination of medical technologies, other areas of IP covered by the TRIPS Agreement are also significant.4 Trade secrets and clinical trial data are subject to protection, and the way that this is applied by members can be critical in ensuring that new technologies are carried forward without overly burdening generic followers. A well-run trademark system has a valuable role in ensuring accurate information for medical practitioners and consumers while safeguarding against potential confusion with critical terms such as the international non-proprietary names that are used to identify pharmaceutical substances and ingredients. A balanced copyright system that takes due account of the interests of rights-holders and the public at large to access copyright-protected works can support R&D activities and enable the development of digital solutions to support diagnostics and treatment.

IP systems are only one element of the innovation cycle that includes the discovery, development and delivery of new health technologies. An integrated approach to respond to the COVID-19 pandemic implicates numerous policy areas, including tariffs and import licensing, government procurement, regulatory standards, health services and competition policy.5 A standalone section in the 2020 study jointly published by the World Health Organization (WHO), the World Intellectual Property Organization (WIPO) and the WTO, Promoting Access to Medical Technologies and Innovation: Intersections between public health, intellectual property and trade (second edition),6 on COVID-19 was added at the start of the publication to map the multiple challenges posed by the pandemic in relation to the integrated health, trade and IP policy frameworks set out in the study. 

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To read the full report, click here.

Diversification and The World Trading System

Diversification is important because it is associated with economic growth and reduced volatility. Diversification of exports, which provide foreign exchange and enable imports of critical goods, services, and know-how, is crucial for developing countries. The question we address in this brief is how export diversification is affected by trade policies, including multilateral rules, regional trade agreements, and national measures. The record on diversification is poor across a large number of developing countries, especially in Africa, the Middle East, and Latin America. Asian and Eastern European countries have performed better. Though diversification first requires domestic reforms, the current trading system does not help. The world trading system does not support developing countries with export diversification; moreover, the situation is deteriorating. To promote export diversification in developing countries and to sustain long-term global growth, the Group of Twenty (G20) must restore the credibility of the rule-based system. Reducing tariffs and tariff escalation in labor-intensive manufactures is critical. In many developing countries, the diversification potential for agriculture is severely impeded by subsidies, tariff barriers, and protectionist standards. Individual countries can take many steps to foster export diversification, the most important of which are improving the efficiency of their service sector, liberalizing imports of services, and encouraging inward direct investment. Reforms of the world trading system, spearheaded by the G20, can help promote these changes at the country level.

To download the full report, please click here.

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Uri Dadush is a non-resident scholar at Bruegel, based in Washington, DC and a Senior Fellow at the Policy Center for the New South in Rabat, Morocco. He is also Principal of Economic Policy International, LLC, providing consulting services to international organizations as well as corporations. He teaches international trade policy at the School of Public Policy at the University of Maryland and a course on globalization and development in the executive education program of the Ecole des Hautes Etudes Commerciales (HEC) and the Mohammed VI Polytechnic. He is a co-chair of the Trade, Investment and Globalization Task-Force of the T20. He was Vice-Chair of the Global Agenda Council on Trade and Investment at the World Economic Forum. His books include “WTO Accessions and Trade Multilateralism” (with Chiedu Osakwe, co-editor), “Juggernaut: How Emerging Markets Are Transforming Globalization” (with William Shaw), “Inequality in America” (with Kemal Dervis and others), “Currency Wars” (with Vera Eidelman, co-editor) and “Paradigm Lost: The Euro in Crisis”.

Abdelaaziz Ait Ali is a resident Economist who joined OCP Policy Center after five years’ experience at The Central Bank of Morocco. He worked as an economist at the Economics and International Relations Department. He was in charge of analysing the Real Estate Price Index and was assigned to monitor several assets prices, including stocks markets, for monetary policy and financial stability objectives.

Mohammed Al Doghan is an Associate Professor at King Faisal University

Muhammad Bhatti PhD, MBA, is an assistant professor in the College of Business, King Faisal University, in Hofuf, Saudi Arabia. He holds a bachelor’s degree in business and accountancy; a master’s of business administration in marketing, human resource management and a doctorate in training and development. His areas of expertise include international business, strategic management, human resource development, and human resource management. Dr. Bhatti has also designed training programs for executives around the world, reviewed articles for the European Journal of Training and Development, and been published in the fields of training and development, internationalization, e-learning, and business research.

Carlos Braga works in the fields of international economics, macroeconomics scenarios, corporate strategy and international agencies (World bank, IMF, WTO, OCDE, UN). He holds a doctorate degree in economics from the University of Illinois at Urbana Champaign, a master’s degree in Economics from Universidade de São Paulo and a bachelor’s degree in mechanical engineering from Instituto Tecnológico de Aeronáutica. Carlos Primo is adjunct professor at FDC, working for programs such as International Advisory Council, PAEX, Embraer, Sicredi, Roche, Sicoob, FGCOOP, DSM, Mapfre, Unilever, and Executive MBA. He was a faculty member at IMD in the programs MBA, EMBA, BPSE, Hydro, Electrolux, Nestlé, Tetra Pak, Allan Gray, Bossard, FEBRABAN, ABB, BAE, Sumitomo from 2012 to 2015 and currently is a guest professor in the Executive MBA program at IMD. He is also  visiting professor (International Economics) at El Colegio de Mexico, since 2017.  As an executive, Primo was the coordinator of the program infoDev (Information for Development, World Bank, 1997-2001); IT senior administrator (World Bank, 2001-03); director at the Economic Policy and Debt Department (World Bank, 2008-10); acting vice-president of the administration board at the World Bank Group (2010); director at the foreign relations for Europe (World Bank, 2011-12). His latest publications include: “A nova face da globalização: implicações para o Brasil,” 34 DOM: 9-15; “Foreign direct investment and ‘peak globalization’,” Columbia FDI Perspectives, n. 230, July 16, 2018; “Innovation, Trade, and Intellectual Property Rights: Implications for Trade Negotiations,” in D. Ernst & M.G. Plummer, eds, Megaregionalism 2.0: Trade and Innovation within Global Networks. New Jersey: World Scientific, 2018; Future of the Global Trade Order, 2nd edition, co-editor with B. Hoekman. Florence: EUI; Lausanne: IMD; Nova Lima: FDC, 2017; New Realities: Business Dynamics at the Frontiers of Globalization, co-editor with JP Lehmann. Lausanne: IMD, 2015; Sovereign Debt and the Financial Crisis: Will This Time Be Different?, co-editor with G.A. Vincelette, The World Bank, 2010; Innovation and Growth: Chasing a Moving Frontier, co-editor with V. Chandra, D. Erocal, and P.C. Padoan, OECD, 2009; Debt Relief and Beyond, co-editor with D. Doemeland, The World Bank, 2009; The WTO and Accession Countries, 2 vols, co-editor with O. Cattaneo, 2009; Trade Preference Erosion: Measurement and Policy Response, co-editor with B. Hoekman and W. Martin, The World Bank, 2009.

Abdulelah Darandary is an Economist and researcher at KAPSARC. He primarily works on the KAPSARC Global Energy Macroeconometric Model (KGEMM) project. In parallel, he is developing an application of the Input-Output Model for Saudi Arabia. Currently, he is the Task Force coordinator of Investment, Trade, and Growth for the T20. Previously, an economic consultant, he provided policy analyses, modeling, and forecasting for the impacts of public spending on social and economic indicators.

Anabel González is host of the Peterson Institute’s Trade Winds virtual event series. She was senior director of the World Bank’s Trade and Competitiveness Global Practice (2014–18), where she led the Bank’s agenda on trade, investment climate, competitiveness, innovation, and entrepreneurship. She previously served as minister of trade of Costa Rica (2010–14), where she headed the strategy to join the Organization for Economic Cooperation and Development, negotiated and implemented six free trade agreements, and contributed to attract over 140 foreign direct investment projects. She also had a lead role in Costa Rica’s Competitiveness and Innovation Council and was president of the Export Promotion Board. In her more than 15 years of service at the Ministry of Foreign Trade, she held several positions, including ambassador and chief negotiator of the free trade agreement between Central America and the United States (2003–04). She has also worked as director of the Agriculture Division of the World Trade Organization (2006–09); senior consultant on trade and investment, Inter-American Development Bank (2009–10); and director-general, Costa Rican Investment Promotion Agency (2001–02).

Niclas Poitiers joined Bruegel as a research fellow in September 2019.

Niclas’ research interests include international trade, international macroeconomics and the digital economy. He is working on topics on e-commerce in trade as well as European trade policy in global trade wars. Furthermore he is interested in topics on income inequality and welfare state policies.

He holds a Ph.D. in Economics from Universitat de Barcelona, a M.Sc. in economics from the Universität Bonn, and a B.Sc. from Universität Mannheim. During his Ph.D. he was a visiting scholar at Northwestern University.

2020 © All rights reserved

A Scoping Review of Market Links Between Value Chain Actors and Small-scale Producers in Developing Regions

Sustainable Development Goal 2 aims to end hunger, achieve food and nutrition security and promote sustainable agriculture by 2030. This requires that small-scale producers be included in, and benefit from, the rapid growth and transformation under way in food systems. Small-scale producers interact with various actors when they link with markets, including product traders, logistics firms, processors and retailers. The literature has explored primarily how large firms interact with farmers through formal contracts and resource provision arrangements. Although important, contracts constitute a very small share of smallholder market interactions. There has been little exploration of whether non-contract interactions between small farmers and both small- and large-scale value chain actors have affected small farmers’ livelihoods. This scoping review covers 202 studies on that topic. We find that non-contract interactions, de facto mostly with small and medium enterprises, benefit small-scale producers via similar mechanisms that the literature has previously credited to large firms. Small and medium enterprises, not just large enterprises, address idiosyncratic market failures and asset shortfalls of small-scale producers by providing them, through informal arrangements, with complementary services such as input provision, credit, information and logistics. Providing these services directly supports Sustainable Development Goal 2 by improving farmer welfare through technology adoption and greater productivity.

To download the full article, please click here.

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Lenis Saweda O. Liverpool-Tasie is an Associate Professor in the Department of Agricultural, Food, and Resource Economics at Michigan State University.

Ayala Wineman is a Research Associate in Evans School of Public Policy & Governance at University of Washington.

Sarah Young is a Senior Librarian at Carnegie Mellon University.

Justice Tambo is a Socio-Economist at the Centre for Agriculture and Bioscience International.

Carolina Vargas is a Master’s/PhD Student in the Department of Agricultural, Food, and Resource Economics at Michigan State University.

Thomas Reardon is a Professor and MSU Distinguished Faculty in  Department of Agricultural, Food, and Resource Economics at Michigan State University.

Guigonan Serge Adjognon is an Agricultural Economist on the Development Impact Evaluation (DIME) Team at theWorld Bank.

Jaron Porciello is an Associate Director for Research Data Engagement in the Department of Global Development at Cornell University.

Nasra Gathoni is part of the faculty of Health Sciences Librarian at Aga Khan University.

Livia Bizikova is the Lead, Monitoring and Governance, Tracking Progress at International Institute for Sustainable Development.

Alessandra Galiè is a senior scientist at the Gender International Livestock Research Institute.

Ashley Celestin is a Master of Professional Studies candidate in International Agriculture and Rural Development at Cornell University. 

Improving Governance and Tackling Crime in Free-Trade Zones

ASSESSING CRIMINAL RISKS of FTZs is similar to evaluating the criminal profile of a city neighbourhood. Almost all depends on the neighbourhood. The only characteristic that all FTZs share is that customs duties do not apply in the same way as in the rest of the country’s territory. Beyond this, everything else can differ from zone to zone, including: the non-customs-related business incentives on offer; governance arrangements; geographical location; and the profile of users and activities.

While there are some country-wide factors at play, such as the quality of governance and corruption, context remains vital. In some countries, high volumes of trade and reduced incentives for customs oversight may create a uniquely enabling environment compared to the rest of the national territory. In others, such as Morocco, FTZs pose lesser criminal risks than many of the country’s other border crossings by virtue of being subject to at least some level of control and security arrangements. Yet, in other countries, like Singapore, the country’s tariff regime is so liberal that the distinction between FTZs and the country’s customs territory is all but obliterated, which reduces incentives for smuggling goods from an FTZ into Singapore’s domestic market but does not affect its position as a prime transhipment node for illicit goods.

But, not everything is relative, and some generalisations are possible. The spotlight on FTZs in recent years has disclosed common vulnerabilities, and the research for this paper has added further depth to the understanding of crime-related challenges that beset multiple FTZs around the world. Of these, the following areas are especially problematic:

• The lack of consistent international standards and incentives in relation to the policing of goods that pass through FTZs in transit.

• Inadequate understanding of FTZ-related criminal risks in general and financial crime risks specifically, including at the stage of planning and approving the establishment of an FTZ.

• Insufficient clarity of FTZ-related responsibilities and lacking coordination among various agencies involved, including limited information sharing and failure to involve customs agencies in FTZ-level risks assessment.

• The absence of credible monitoring of FTZ administrators and users, as well as the resulting gap in enforcement.

• The lack of proportionate AML/CTF supervision of FTZ-based businesses that would take account of the risk profile and volume of FTZ activities.

• Limited cooperation with the private sector.

In a positive development, however, the international conversation on FTZs has now moved beyond cataloguing a litany of real or perceived failings. The OECD’s Code of Conduct for Clean Free Trade Zones and the WFZO’s Safe Zone certification programme hold out the promise of both promoting good governance in FTZs and enabling compliant FTZs to distinguish themselves from those that are not.

These are commendable initiatives with the potential to make a difference. However, voluntary certification programmes for the best in class are not sufficient to address a host of FTZ-related vulnerabilities. This requires a concerted effort from governments, FTZ administrators, users and other private sector actors. Voluntary actions are especially unlikely to succeed in preventing criminal misconduct in those FTZs that are neither alive to criminal risks nor face any tangible pressure to raise their game.

With that in mind, this paper offers the recommendations summarised below as a means of advancing the global effort to strengthen FTZ integrity and further advance the useful work already done in this area.

To download the full report, please click here.

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Anton Moiseienko is a Research Fellow at RUSI’s Centre for Financial Crime and Security Studies.

Alexandria Reid is a Research Fellow in the Organised Crime and Policing team at RUSI.

Isabella Chase is a Research Fellow at RUSI’s Centre for Financial Crime & Security Studies.

Copyright 2020 RUSI Registered Charity (no. 210639)

DDG Wolff: Open Markets Essential to Global Economic Recovery

Thank you for the invitation to participate in this year’s Globsec 20 Forum.  You have asked me to begin by reviewing where we stand with the world trading system in the midst of this pandemic, the first in a century.

We are grappling with some of the biggest declines in GDP and trade in decades.

Estimates suggest global economic output will shrink by 4.8% this year – the worst drop since the Second World War.
Earlier this week the WTO updated its forecast for trade in 2020. Our economists now predict that the volume of global merchandise trade will shrink by 9.2% compared to last year.


This contraction would be the worst in years – on par with that seen during the 2008-09 global financial crisis. But put into context, it also represents relatively good news – it’s better than the 13% to 32% range of the initial estimate made in April. A 13% fall in trade would already have been the worst drop since the 1930s, had the outbreak and the policy responses had an even more adverse impact.
Stronger-than-expected trade growth in June and July helped push the revision upwards.


This does not mean that the picture for trade is rosy. Services trade has been badly hit, and while the data are not available yet, the recovery from the fall-off in travel and in-person services will be slow. Even the 7.2% rise in merchandise trade volume foreseen for 2021 would not bring us back to the pre-crisis trend. In addition, there are serious downside risks, particularly if there is resurgence of COVID-19 cases in the coming months.
In the wider economy, beyond the initial rise in spending as lockdowns were relaxed, the road to recovery may be tortuous. Psychological factors, such as a lack of confidence or changed habits, could result in weak consumption and investment by households and businesses, not to mention spikes or just continuation in the course of the disease.

Fixing the global economy requires action at home, complemented by cooperation abroad (not least on trade).

Unprecedented fiscal and monetary action has helped mitigate the pandemic’s economic impact by providing very substantial support to incomes and consumption and stabilizing financial markets. Without these steps, the contraction in output and trade would have been much worse.
However, public authorities must be careful not to cut off the flow of funds too soon. The IMF has urged governments in a position to do so to ramp up public investment, funded by borrowing if necessary, to create jobs and lay the foundation for greener growth and higher productivity. By increasing confidence, such spending would catalyze increased private investment, spurring growth and reducing debt burdens.
Keeping international markets broadly open to trade is an essential part of this recovery-oriented agenda. Trade enables the productivity gains that come from increased specialization and scale.
An open, transparent and predictable trading system would reduce uncertainty for businesses, encouraging increased investment. This is good not just for the cross-border movement of goods and services, but of ideas and technology.

Trade and trade policy are also playing direct roles in countries’ responses to the pandemic.

Our new trade data shows that trade in personal protective equipment (PPE) recorded explosive growth, up 92% in the second quarter compared to the year before – 122% if we compare May of this year to May 2019. Trade has contributed to meeting skyrocketing demand for essential goods.
Early in the outbreak, a number of jurisdictions introduced export bans on medical products and even food. The WTO has been tracking COVID-related trade measures as part of our mandate to promote transparency in international trade.
Our monitoring efforts showed that the trade restrictions were quickly joined by measures to facilitate imports of key supplies. These included lowering tariffs and other taxes on such as PPE, sanitizers, disinfectants, medical equipment and medicines, as well as simplifying customs procedures and documentation requirements; establishing priority channels; and cooperating on customs and regulatory approval.
Of the several hundred COVID-specific measures compiled from February through the end of August, nearly two-thirds were trade facilitating.
Many of the early export bans have been repealed, particularly with respect to food as global supplies of cereals are strong.  About 22% of all of the pandemic-related trade-restrictive measures implemented by G20 economies have been removed.

A functioning trading system is in the interest of countries big and small.

The pandemic has exposed some of the fragilities inherent to economic interdependence.
It added further impetus to the debate over on-shoring and near-shoring supply chains.
Some voices in this debate equate domestic production with supply resilience. This is erroneous. Concentrating industry at home might make it less vulnerable to disruptions elsewhere, but domestic supplies would become more vulnerable to localized disruptions, for example from a natural disaster, or an outbreak of human or animal disease.  Particularly dangerous are zoonotic diseases, which transfer infection from animals to humans. 
If domestic production faces physical limits or is much more expensive than imports, countries will still be grappling with a constraint on meeting demand – except it will be about affordability instead of availability.
Countries with the ability to do so may try to increase domestic manufacturing capacity for certain supplies. But there are constraints on their ability to do this. Profitability is one.  Opportunity costs are another. Resources diverted to replicating what was previously done elsewhere will not be available for potentially more productive activities. Taken far enough, this would make for a poorer economy overall.
Stockpiling is also far from a perfect option.  There is not only the problem of cost, but of anticipating the needs that will have to be met in the future.  We have seen in recent months that when governments turned to stockpiles, they often found them depleted, out of date, or in the case of medical devices, the equipment in the stock was all too often inoperable. Moreover, a serious enough crisis might overwhelm stockpiles, or consist of demands for products that were not foreseen.
At the level of individual supply chains, it is likely that low-inventory just-in-time production networks will feel the need to build in more buffers, in the shape of bigger inventories.  There will also be diversification of offshore sources of supplies
While there will likely be a combination of these approaches – efforts to make existing supply networks more resilient, attempts to bolster domestic production of key products, and stockpiling, deep and diversified international markets offer a more promising path to supply resilience. Trade remains the economically optimal response, but countries need to be confident they can rely on imports.

The trading system can and must respond to these changes.

​A robust and timely response is needed both for the wider goal WTO reform for a broadly open, rules-based global economy, and for the narrower issue of access to essential products in a time of crisis.
Several governments have put forward ideas for how agreements at the WTO could help keep supply lines for essential goods open and responsive. The WTO was created to facilitate international cooperation, transparency and rules-based frameworks for international trade.
A number of members decided early in the pandemic to lead by example:


Singapore and New Zealand agreed on measures to facilitate the trade of essential goods, namely by eliminating applied tariffs, refraining from export prohibitions or restrictions, and expediting the movement of crucial goods across borders.
In a joint ministerial statement, Australia, Brunei Darussalam, Canada, Chile, Myanmar, New Zealand and Singapore declared their commitment to maintaining connected supply chains and ensuring that the transportation of essential goods remains open.
On 15 May 2020, the G20 called on governments imposing COVID-related measures to refrain from creating unnecessary trade barriers and disrupting global supply chains, emphasizing that measures should be “targeted, proportionate, transparent, temporary and consistent with WTO rules.”
In June, the Ottawa Group (which includes Canada, Australia, Brazil, Chile, European Union, Japan, Kenya, Republic of Korea, Mexico, New Zealand, Norway, Singapore and Switzerland) committed to ensuring transparency (calling on the WTO Secretariat to provide monitoring and to share best practices), withdrawing trade-restrictive measures as quickly as possible, fostering WTO e-commerce negotiations, and facilitating the trade of medical products.
Also in June, a concept paper from the EU proposes a three-pronged approach: 1) permanent and reciprocal tariff elimination on pharmaceutical and medical goods, 2) disciplines relating to essential goods in crisis situations, and 3) other disciplines, such as regulated remanufactured goods for knowledge sharing.  The concept paper:


Notes a need to update the Pharmaceutical Agreement’s product coverage and add duty-free treatment to medical goods to existing disciplines.
Proposes limitations on the duration and scope of export controls for medical goods in response to health emergencies. and,
Recommends the creation of a permanent framework for collaboration and transparency.

What can be done?

At a minimum, Members can consider adopting for industrial goods the same commitment that exists in the WTO Agreement on Agriculture: require members contemplating export restrictions to “give due consideration” to the effects such measures could have on food security in importing countries, as well as providing advance notice to the WTO and agreement to consult promptly with affected members.  

In addition, a close look can be had at the WTO rules that permit temporary export restrictions to prevent or relieve domestic shortages of critical supplies.  This exception to the rules prohibiting export restrictions, also contains the following language:  In this context, there is also a requirement that

such measures shall be consistent with the principle that all contracting parties are entitled to an equitable share of the international supply of such products, and that any such measures, which are inconsistent with the other provisions of the Agreement shall be discontinued as soon as the conditions giving rise to them have ceased to exist. WTO GATT Art. XX(j).

Consideration can be given to operationalizing the right of WTO Members to have an “equitable share of international supply” of critical medical supplies.

The WTO’s contribution to post-COVID recovery would be substantially enhanced if members take forward the ongoing process of systemic reform.

Currently, there are a variety of ongoing negotiations that each represent steps in the direction of reform:


Multilateral talks on fisheries subsidies.
Negotiations on digital trade among a group of Members accounting for over 90% of global trade including the European Union, China, and the United States.

Accomplishing these objectives would mark a return of the WTO to widely acknowledged relevance.  But they are not enough. 

The line must be held against a return to nations going their own way, resorting to protection rather than to international co-operation.  A stand-still is needed on trade restrictive measures, and more: liberalization of trade wherever possible, full implementation of the Trade Facilitation Agreement, with a major increase in capacity building in the least-developed countries, hearing for the first time the pleas from land-locked countries, and generally lowering the cost of moving goods across borders.

The WTO has great convening power.  During the financial crisis it brought together international financial institutions and major banks to restore trade finance.  That job was still unfinished when the pandemic descended upon us. 

Increased efforts are needed by the public and private sectors to ensure that trade finance is available at reasonable cost and in the quantities needed. For many developing countries and smaller businesses, the credit, guarantees and insurance that finance a significant share of global trade were far from abundant even before COVID-19.  When trade-related credit is insufficient, it  prevents businesses from trading and limits the ability of trade to contribute to the wider economic recovery.  By one estimate, financing capacity ranging from $2 to $5 trillion will be needed to meet demand for trade finance.(1)

As important as these measures are, the WTO needs to be restored to its intended purpose, its role as a venue:

where agreements are successfully negotiated to address pressing problems; 
where disputes are settled within a binding and universally accepted structure; and
where members are actively served by a strong, dedicated, professional Secretariat. 

We need also to be better prepared for future crises.  While the present will not take care of itself, neither will the future.  Concerted efforts at forward planning are needed to provide fresh thinking in order to:

Prepare for a world of more simultaneous and system-wide crises; and
Consider what kind of trade rules would best support people’s well-being, under changing and challenging circumstances.

There are no good excuses for inaction. While the WTO is not isolated from geopolitics, all leading powers have shared interests in the basic framework for international trade that the WTO represents.

In 1934, an answer to the depression was the negotiation of trade liberalizing agreements; in 1948, an answer to the devastation of two world wars was the creation of the multilateral trading system; in1973 an answer to a world divided by nontariff barriers was the launching of the Tokyo Round; and in 1995, the answer to broad areas of international commerce still being devoid of adequate rules, was the creation of the WTO. 

This is yet another time of great challenges, of a resurgence of nationalism, of centrifugal forces.  The policy response must consist of strong new initiatives to open markets, to provide greater fairness, and to re-kindle a spirit of international co-operation.   

We have a strong foundation on which to build. It is now necessary to answer the call for WTO reform.  The times demand action.

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