Connect with us
//pagead2.googlesyndication.com/pagead/js/adsbygoogle.js (adsbygoogle = window.adsbygoogle || []).push({});

Trade

Securing supply chains and global production after COVID-19

Published

on

Staff of a local factory owned by Honda Motor Company, a Japanese public multinational conglomerate corporation primarily known as a manufacturer of automobiles, work to produce cars after a long Spring Festival vacation, Wuhan city, central China's Hubei province, 23 March 2020. (Photo: fachaoshi via Reuters).

Author: Editorial Board, ANU

The lockdowns that started in China’s Hubei province on 23 January were a major disruption to the international supply of manufactured goods. Its capital Wuhan, the epicentre of the COVID-19 pandemic, is an industrial powerhouse that produces nearly 10 per cent of all motor vehicles made in China and, for example, is home to more than 100 parts suppliers for Honda alone.

The rest of China went into lockdown soon after, temporarily shutting down the world’s ‘global factory’.

As the world’s largest trading nation and the second-largest economy, the lockdown in China affected importers, manufacturers and consumers everywhere. For those who advocate for reducing dependence on the Chinese economy, and even to decouple from it, this event provided further proof of a broken business model.

But then most of the rest of the world went into lockdown too. Supply chains everywhere were affected.

The forces for on-shoring manufacturing have been unleashed. There is a related push to reduce dependence on the Chinese economy. Shortages of food in some countries and medical and protective equipment in most have led to the widespread use of export restrictions and the rapid repurposing of factories to boost self-sufficiency where possible.

Temporary measures to restrict exports of food, medical equipment and medicines will be difficult to undo. The forces that try to shorten supply chains will be harder to resist.

As Shiro Armstrong argues in the first of this week’s feature essays, economic nationalism is ‘gathering momentum in many countries’ and that ‘will make the world poorer, weaker and less secure’. Reducing vulnerability in supply chains by on-shoring production, putting up barriers to foreign investment and shortening supply chains is ‘the North Korean model of eliminating risk in international economic engagement’. The hermit kingdom is secure from external supply risk.

Supply chains are vulnerable to disruptions. So is production anywhere. Shortening supply chains or bringing supply onshore to reduce vulnerability is a fallacy. Eliminating reliance on foreign inputs increases reliance on domestic inputs, which are also subject to lockdowns in a pandemic.

Shortening supply chains or on-shoring production outside of a global crisis can increase risk, especially if driven by political goals rather than business decisions. Armstrong explains that ‘supply chains that are concentrated onshore are more vulnerable’ because ‘a natural disaster or home-grown crisis could wipe out whole industries’. And ‘the best insurance against drought or crop failure in one part of the world is openness to supply from producers all around the world’. The key is to manage supply chain risk, not avoid it.

One of the most pressing of these risks is the way in which ‘concerns about national security and sovereignty’ are strengthening the forces of protectionism, as Ken Heydon argues in another of our features this week. The ‘real risk is that on-shoring gains will prove illusory, particularly when they are pursued behind a protective tariff wall or through ostensibly temporary measures, such as state subsidies, that become subject to protectionist capture’.

A return to business as usual is not the answer though, with the pandemic exposing problems in global value chains. As Larry Summers says, ‘economic thinking has privileged efficiency over resilience’ and ‘going forward we will need more emphasis on “just in case” even at some cost in terms of “just in time”’.

Some accumulation of inventories can help but the real role for government is much more fundamental.

Peter Gourevitch and Deborah Seligsohn explain in our third feature that efficiency is not the only consideration, and ‘sometimes it fails us when we need security, stability, equity’. They argue that the real vulnerabilities in trade and international commerce are the inadequate social safety nets. ‘Most advanced economies have realised that universal healthcare is an essential component for the entire population’ and COVID-19 ‘has laid bare how frayed labour protection is, especially in the United States’.

Supply chains can be made more resilient by making society more resilient. People should be able to shift jobs to respond to crises and external shocks as production priorities change rapidly. That will help society benefit from the ‘efficiencies of trade while distributing the benefits more justly’ and to ‘combine free trade with support for the whole population’, as…

Source link

Trade

Fixing fragmentation in the settlement of international trade disputes

Published

on

Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.

Fragmentation in Global Trade

Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.

Challenges with WTO Dispute Settlement

The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.

The Path Forward for Global Trade

Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.

Source : Fixing fragmentation in the settlement of international trade disputes

Continue Reading

Trade

WTO ministerial trading in low expectations and high stakes

Published

on

The WTO’s 13th Ministerial Conference is set to focus on e-commerce transparency, investment facilitation, and admitting new members. However, progress may be hindered by disputes, especially regarding fisheries subsidies.

The World Trade Organisation’s 13th Ministerial Conference

The World Trade Organisation’s (WTO) 13th Ministerial Conference is set to take place in Abu Dhabi on 26–29 February, with expectations of deals on electronic commerce transparency, investment facilitation for development, and the admission of Timor Leste and the Comoros as WTO members. Despite these positive developments, the expectations are relatively modest compared to promises made at the 12th Ministerial Conference, which included addressing fisheries subsidies and restoring a fully functioning dispute settlement mechanism by 2024.

Challenges in Dispute Settlement and Agricultural Trade Reform

However, challenges remain, especially in the deadlock of dispute settlement since December 2019 due to a US veto on the appointment of Appellate Body judges. Progress in restoring the dispute settlement mechanism has stalled, and discord continues regarding India’s grain stockholding policy as a potential illegal subsidy. Restoring a fully functioning dispute settlement mechanism hinges on addressing US concerns about perceived bias against trade remedies in relation to China’s state subsidies.

Geopolitical Tensions and the Future of Trade Relations

The likelihood of reaching agreements amid geopolitical tensions between Western democracies and China appears slim, with issues surrounding subsidies and global supply chains causing rifts in trade relations. As nations focus on self-reliance within the global value chain, opportunities for trading face obstacles. Advocacy for open markets and addressing protectionist sentiments remains crucial for fostering resilience to external shocks and promoting economic growth.

Source : WTO ministerial trading in low expectations and high stakes

Continue Reading

Trade

Getting Vietnam’s economic growth back on track

Published

on

Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.

Vietnam’s Economic Roller Coaster

After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.

Trade Performance and Monetary Policy

Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.

Challenges and Prospects

Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.

Source : Getting Vietnam’s economic growth back on track

Continue Reading