Davos 2023: The state of global trade and investment
Written by on January 24, 2023
Trade and investment emerged as an overarching theme in this year’s Annual Meeting in Davos. Over the last 12 months, despite widespread inflation; supply chain issues lingering since the COVID-19 pandemic; geopolitical shocks, including Russia’s invasion of Ukraine; and, talks of deglobalization and geo-economic fragmentation, global trade touched a record volume of $32 trillion.
Yet, there is concern that various headwinds will lead to a significant global economic downturn. Nonetheless, Annual Meeting 2023 participants, such as Kristalina Georgieva, the Managing Director of the International Monetary Fund, urged governments and the private sector to “be pragmatic, collaborate” and “keep the global economy integrated for the benefit of all of us.”
But what lies on the road ahead? Below, we lay out the week’s key highlights, hot from Davos 2023:
Relaunching growth, trade and Investment
“Despite all problems with the global commons we face today, we can’t solve them without multilateralism, cooperation and trade. We should not throw out the baby with the bathwater,” emphasised World Trade Organization (WTO) Director General Ngozi Okonjo-Iweala.
Likewise, several speakers observed that despite the polycrisis we find ourselves in threatening a fragmentation of global trade, multilateralism and cooperation remain effective tools for prosperity. If the world decouples into even two blocks that would cost us 5% of real global GDP. Global economic fragmentation, including friendshoring, is bound to be expensive because it will lead to inefficiencies and duplication and thus to inflation.
Trade and investment facilitation to spur development have resulted in significant real cost savings and increased incomes. In its sixth year of operation, the Global Alliance for Trade Facilitation received renewed support, as announced by USAID Administrator Samantha Power.
Trade as Europe’s green tool
European Commission president, Ursula von der Leyen, listed trade as one of the four pillars in her bloc’s Green Deal. As countries put in place their Net-Zero industry and energy transformation plans, resilient supply chains and open markets will be critical to ensuring access to raw materials and inputs central to decarbonisation. The EU also sees trade as a vital component towards reducing dependencies on monopolistic supply chains for critical materials, including lithium and rare earths. “Competition and trade are the key to speeding up clean tech and climate neutrality,” noted von der Leyen.
As the EU’s own Carbon Border Adjustment Mechanism (CBAM) continues to animate debates in some circles around its protectionist nature, it will be interesting to see how carbon competitiveness measures evolve around the world in a bid to level the playing field en route to Net-Zero.
Globalization: where it should be headed
As globalization evolves in the face of shifting geopolitical, demographic and environmental realities, it must become more sensitive to labour issues and inequality. A singular focus on the least cost model of globalization must make way for one that caters for environmental and social constraints as well. Deeper stakeholder engagement is needed to better integrate and implement labour rights and supply chain due diligence in our economic systems.
“Let us not, in the new version of globalization, lose sight of who we want to benefit from our vision and from the economic opportunity that we want to create. And that is, let us not lose sight of the people that comprise our economies, who are not just consumers, but also workers, family members, community members,” the United States Trade Representative Katherine Tai observed.
A revised model of globalization should also do better by Indigenous Peoples – recognizing their land, cultural and property rights and investing in their businesses and communities, mindful of the climate risks they face and the knowledge and sustainability opportunities they bring. As Julio José Prado, Minister of Production, Foreign Trade, Investment and Fisheries of Ecuador summarised: “It is important to bring the topic of Indigenous People to the mainstream agenda, especially the global trade and investment agenda.”
A coalition of trade ministers on climate
The trade ministers of Ecuador, the European Union, Kenya and New Zealand led the launch of a coalition of trade ministers on climate, with over 50 ministers of trade as members. The coalition will provide high-level political direction and guidance to bolster inclusive international cooperation at the nexus of climate, trade and sustainable development.
Responding to a need for climate action and trade policy to work in concert with each other, the coalition will enhance cooperation among ministers working on climate, development, environment and finance, both at the national and international levels. The current membership of the coalition reflects countries from all regions, in varying degrees of development and with different climate vulnerabilities.
“If we want a truly global response to climate change, we need to engage nationally and internationally with fellow ministers working on climate, environment, finance and development among others; we need to do a better job in joining these different dots,” explained Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People; Commissioner for Trade, European Commission.
Germany and South Korea on sustainable and digital trade and investment
Chancellor Olaf Scholz announced Germany’s intention to become carbon neutral by 2045, while still having a strong industrial sector. He welcomed new ambitious members to join the international climate club that Germany launched last year as hosts of the G7. While expressing support for the US Inflation Reduction Act’s environmental underpinnings, the Chancellor observed that local content requirements can discriminate against non-US businesses and hinder innovation, competition and climate action.
Yoon Suk Yeol, the President of the Republic of Korea, discussed the fragmentation of global supply chains and asserted that trade being a global public good, the international trade framework should be based on multilateralism and global norms. He noted the importance of supply chain resilience in ensuring sustainable prosperity, the low-carbon transition, responding to the climate crisis and energy security and a new digital order. President Yoon also affirmed Korea’s commitment to aiding the diffusion of digital technologies in developing countries.
A growing role for investment
Over 50 WTO members reaffirmed their high-level support for the latest negotiating text for a ‘Draft Investment Facilitation for Development (IFD) Agreement’ at the WTO. The IFD Agreement aims to create a transparent, efficient and investor-friendly business climate, making it easier for host and home governments to attract and retain sustainable investment that is better geared towards development. The initiative counts 112 WTO members, including 77 developing members, among which 20 are LDCs. Ahn Duk-Geun, Minister for Trade, Republic of Korea confirmed a strong endorsement of the agreement from the private sector.
Experts working at the confluence of climate and finance agreed that investment promotion agencies (IPAs) can play a unique role in facilitating climate foreign direct investment (FDI) that helps achieve climate goals. The experts subsequently called on the Forum to undertake consultations with governments and firms on the possible creation of a Coalition of Investment Promotion Agencies for Climate (CIPAC).
Pakistan and Rwanda were announced as the first countries to receive support in making their investment environments ‘digital-friendly,’ under the aegis of the Digital FDI Initiative, where the Forum is collaborating with the Digital Cooperation Organization. They will be followed by a robust pipeline of other countries to be announced soon.
Tech for trade
The United Arab Emirates announced a Memorandum of Understanding with the World Economic Forum on TradeTech to pilot the application of emerging fourth industrial revolution technologies than can help facilitate trade. Thani Ahmed Al Zeyoudi, the UAE’s Minister of State for Foreign Trade, expressed that “moving forward, technology will play a major role in improving the efficiency of the way that we are running things.”
Leaders in international trade and finance agreed that leveraging technology can improve global trade, making it more resilient and accessible while eliminating barriers, such as digital divides, inadequate access to financing and lack of regulation and standards. Trust-building, data sharing, nurturing risk-taking and innovation and capacity building to ensure everyone has access to the necessary technology emerged as key priorities.
Source: World Economic Forum