A new philosophy for re-building global trade

20 November 2020

Global value chains play a central role in the functioning of the global economy – fostering job creation, prosperity, innovation and investment. But how can they meet the challenges of a post-pandemic world? flow reports from the ICC International Trade and Prosperity Week

Just one session into the International Chamber of Commerce’s (ICC) International Trade and Prosperity Week and the call to action was clear. There is a need for “a different philosophy in the way we go about global business,” explained Chris Southworth, Secretary General of the ICC United Kingdom.

Opening screens of ICC International Trade and Prosperity Week (source ICC United Kingdom)

The inaugural digital event, which assembled speakers from companies representing around US$2trn in global turnover, sounded a progressive note on multiple fronts. More than 1,000 attendees registered to hear key figures from corporates, banks, industry bodies, academic institutions and consultants discuss the way forward on the burning issues of trade today, including climate change and green finance, digital trade and technology, tax strategy and trade facilitation, trust and ethical considerations, as well as current and forward-looking market trends.

Keep moving forward

The conference began with keynote speeches from ICC Chair Ajay Banga, B20 Chair Yousef Abdullah Al-Benyan and ICC United Kingdom Board Member Paul Drechsler, addressing headline issues being discussed across international boardrooms – from short-term Covid-19 mitigation to longer-term objectives such as World Trade Organisation (WTO) reform. While Covid-19 led to the widespread disruption of economies and societies across the globe, fully halting international commerce and commercial activities was never an option. Even more so as the pandemic stretches on, it is critical for industries to keep moving forward.

“Protectionism, exacerbated by the necessary containment measures of this pandemic, is endangering the entire system,” Banga noted in his opening speech. “As leaders, it is incumbent upon us to strike the right balance of considerations [between the individual and the collective between human and environmental demands, and between the short term and the long term].”

As the foundation of prosperity and global trust, global trade will be a main driver of recovery. If it does not act quickly and efficiently to support businesses through the ongoing crisis and into the post-pandemic recovery, disparities and divisions will only widen. The consensus is that if small businesses and entrepreneurs are left out of the economic engine being constructed, no one will get very far.

“We need to step up as the merchants of peace and prosperity,” Banga added. “We have the power to unleash the force of innovation, to create and drive solutions with both business and social considerations.”

How can these aims be achieved? Modernisation of the global trade system was a recurring theme throughout the conference – necessary to help reduce the cost and complexity of trade and level the playing field for stakeholders across the industry. Examples include the ICC Digital Trade Standards Initiative, which is already working to bring down barriers and inform trade industry standards, and the ICC Global Alliance for Trade Facilitation, through which ICC provides technical assistance to implement customs reforms and basic, simplified payments. WTO reform was also top of mind – with speakers highlighting the need for a modern, reformed and fit-for-purpose organisation to support global trade.

The WTO has already made its intentions clear, with Deputy Director-General Alan Wolff noting in September 2020 that “Ongoing WTO reform efforts will be crucial to restoring confidence in the system's ability to meet the needs of its users and adapt to changing economic realities,” but cautioning that “the full range of challenges […] cannot, and will not, be addressed overnight.”1

The last major update to the WTO rule book came in 1994, when the internet was in its infancy. It is now time, said Banga, for the organisation to update its framework to accommodate both the developments of the past 25 years, such as the rise of e-commerce, and those of the near future, including the fourth industrial revolution (4IR).

Building back better, together

Al-Benyan of the B20 touched on similar points in his keynote speech, emphasising the need for collaboration and reform as tools for building a sustainable, digitalised and inclusive trade ecosystem. Covid-19 has changed the way we do business worldwide, highlighting the fault lines in international trade and the delicate interdependence that exists across global value chains.

“With additional supply chain disruptions, which have limited cross-border trade and investment, many experts are sounding the alarm for the end of globalisation,” he explained. With border closures slowing not only the flow of people, but also of critical goods and services – at a time when they are most needed – caution is required.

Deglobalisation, however, is not the answer to the system’s current problems, Al-Benyan argued. On the contrary, to make the world a better place, cross-industry and cross-border collaboration is needed. No one nation or group can do it alone.

“The pandemic has demonstrated how interconnected we are, and the responsibility we all share in making the world a better place. As such, globalisation is not only about advancing political policies and business objectives. It is about us, as united nations, building back and better,” he stressed.

Yousef Abdullah Al-Benyan, Chair B20"The pandemic has demonstrated how interconnected we are, and the responsibility we all share"
Yousef Abdullah Al-Benyan, Chair B20

Significant strides have already been made towards these objectives, as ICC United Kingdom’s Drechsler pointed out later. “All the ingredients that have made progress possible over recent decades, and at faster rates, are the very ones that we can use to recover from Covid-19. […] we should look forward with pride and confidence in the fact that business, in collaboration with universities, and enabled by governments will deliver technologies and solutions for more effective test, track and trace, deliver better treatments for Covid- 19 and importantly, deliver the vaccine to deal with Covid-19.”

Urgent matters

While the pandemic was a natural focus point for many panels and speakers, other pressing concerns affecting global value chains were addressed. Climate change remains a real threat; one that should be addressed collectively and holistically, through global and multilateral research, investment and alliances.

According to the OECD, around 70% of international trade involves global value chains.2 Given their pivotal role in supporting the world economy, they need to be flexible enough to adapt to crises and sustainable for the long term – aligning with the sustainable development goals and Paris Agreement objectives.

One example is energy producer BP – planning to adopt a new business model by 2050, based on electricity infrastructure, clean energy and de-carbonisation. Announcing the new “Reimagining energy” model in February 2020, BP’s CEO Bernard Looney explained that “this will certainly be a challenge, but also a tremendous opportunity. It is clear to me, and to our stakeholders, that for BP to play our part and serve our purpose, we have to change. And we want to change – this is the right thing for the world and for BP.”3

On day two of the conference, Richard Walker, Managing Director of frozen food retailer Iceland, explained that the UK supermarket chain has already reduced its carbon footprint by over 70% and removed products associated with de-forestation by engaging the whole value chain.

Climate and green finance session (Source ICC United Kingdom)

Sustainability also plays a role in the financing of trade, as explored in the event’s “Climate and Green Finance” session, moderated by Zoë Knight, Managing Director and Group Head, HSBC Centre of Sustainable Finance. “[HSBC is] taking a more active role within industry associations and other forums to really understand what the decarbonisation pathway looks like for various industries, but also how finance can be much more transparent about how it's supporting the pathway forward,” said Knight.

Investors and issuers alike are increasingly interested in green finance products, she explained, with a survey on sustainable finance finding that 94% of respondents viewed environmental, social and governance (ESG) issues as important or very important.

Panellists – Dr Peter Glynn, Vice Chair Environment and Energy Committee at Business, OECD, Chengcheng Xiong, Deputy Director of Green Finance Department, CECEP Consulting, and Carlo Ferrara, Head of Sustainability, Enel Argentina – delved deeper in the subject.

ESG frameworks and indices have come to the fore, noted Ferrara. “It’s interesting to see that more and more institutional investors are following the guidance of sustainability indices when deciding to invest in a company.” A good sustainability index result may attract an institutional investor portfolio and minimise the volatility over the lifecycle of the obligation, he explained.

Panellists also noted that banks can and should practise what they preach when it comes to green finance, ensuring operations transition to a net-zero model, for example, and aligning client portfolios with sustainability frameworks.

It’s not only corporate and investment banks with a role to play here. Dr Glynn also cited the role of multilateral development banks in encouraging green and sustainable finance, and ESG friendly projects more broadly, especially in emerging markets.

“Many developing or less developed countries’ commitments to climate change are through their nationally-determined contributions with the UN Framework Convention on Climate Change (UNFCCC). These are conditional on external finance – the challenge then is linking the available private sector funds with bankable projects in developing countries,” Dr Glynn said.

Examples include Chile, where the Inter-American Development Bank (IDB) is working with the Chilean government and Enel, the global energy company, on the closure of coal mines in favour of constructing wind farms. IDB has worked closely with Enel to develop the appropriate methodology for measuring the reduction in emissions and report on the cost-benefit of the project, while analysing the implications on employment, among other ESG considerations.

Digital and inclusive future

While sustainability is a relatively new theme when it comes to global trade, the topic of digitalisation has seen its fair share of discussion for many years. With impressive progress made through pandemic-induced circumstances such as work-from-home (WFH), the impact of new technologies and digitalisation has enjoyed particular attention.

But while digitalisation brings opportunities, such as greater visibility across the supply chain, it also presents new challenges – such as cybersecurity risks. Other obstacles, such as legal reform to enable the use of digital trade documentation must be tackled for the continued success of the trade finance industry. For many nations, this is still not possible, but digitalised trade could help remove four billion paper-based documents from the ecosystem. Notably, since the adoption of the Model Law on Electronic Transferable Records by the UN Commission on International Trade Law (UNCITRAL) in 2017, the law has only been enacted in Bahrain.4

Panellists and speakers agreed that the creation of global and interoperable standards – a primary objective of the ICC Digital Standards Initiative – and digital customs systems, is a priority to reduce costs and complexity and improve market access, especially for micro, small and medium-sized enterprises (MSMEs) which are most in need of affordable and straightforward connectivity.

Once again, inclusivity was a recurring theme. Without all stakeholders on board, the journey towards a digitalised, greener and inclusive future won’t be possible. But with the right tools, processes and support in place, combined with bold leadership and long-term holistic thinking, the global trade ecosystem can be rebuilt for the better – with a focus on the whole value chain – to make trade happen for everyone.

ICC International Trade & Prosperity Week – The Future of Global Value Chains was held as a virtual event on 19-23 October 2020. To view the conference agenda and list of attending speakers, please click here.


1 See https://bit.ly/2UGy07k at wto.org
2 See https://bit.ly/3nMNof7 at oecd.org
3 See https://on.bp.com/3pNaILi at bp.com
4 See https://bit.ly/2Hmoh36 at uncitral.un.org

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