{"id":26813,"title":"COVID-19 and Protectionist Policies: a call for Sustainable Value Chains","link":"https:\/\/bst-europe.eu\/de\/globalization\/channeling-the-covid-19-induced-rush-toward-protectionist-policies-into-a-call-for-sustainable-value-chains\/","date":"19. Juni 2020","date_unix":1592579798,"date_modified_unix":1644496092,"date_iso":"2020-06-19T15:16:38+00:00","content":"

by <\/em>Santiago Fernandez de Cordoba<\/strong>: Senior Economist at UNCTAD and Coordinator of the United Nations Forum on Sustainability Standards (UNFSS) www.unfss.org<\/a><\/i><\/p>\n

and Ruby Lambert<\/strong>: Sustainability Expert at the United Nations Conference on Trade and Development (UNCTAD) www.unctad.org<\/a><\/i><\/p>\n

D<\/strong>id COVID-19 make trade and cooperation less attractive? Is it sensible for countries to adopt protectionist policies moving forward? Did the pandemic affect the sustainability agenda?<\/strong><\/p>\n

Globalization has brought profound changes to international trade over the last 50 years. Not only has volume , it has also changed in nature, as value chains spread around the globe and become more complex. Today, about \u00a0US $8 trillion worth of world trade<\/a> goes through Global Value Chains (GVCs), accounting for nearly 70% of the total share of global trade<\/a>.<\/p>\n

GVCs have become a lever in the interconnectedness of open trade, making such activity a significant mechanism through which both trade and development can be fostered. As such, international production fragmentation has given rise to intense involvement of emerging and developing economies participating in the GVCs.<\/p>\n

UNCTAD (United Nations Conference on Trade and Development) estimated that value-added trade in \u00a0developing countries contributed nearly 30% \u00a0to countries\u2019 GDP on average<\/a>, as compared with 18% in developed countries. There is a positive correlation between participation in GVCs and growth rates of GDP per capita. These gains were driven by the fragmentation of production across countries and the growth of connections between firms.<\/p>\n

However, with the economic chaos worldwide caused by the current pandemic, it may seem increasingly sensible for countries to adopt protectionist policies. In other words, the likelihood of favoring self-sufficient economies by embracing policies seeking protectionism in the name of greater resilience may undermine any economic interest in participating in GVCs \u2013 putting developing countries\u2019 economic growth at stake.<\/p>\n

Complete autarky (or self-sufficiency) is unlikely to be possible as<\/a> regional value chain links are increasingly becoming more important than global ones, especially in North America, Europe, and South-East Asia. This is a clear indication that international trade (more so than regional trade) will continue to persist despite any tendency to close trade borders.<\/p>\n

The degree of trade openness is very much dependent on policy tools such as import and import quotas, tariffs, monetary or fiscal policy, exchange rate controls, and controls on capital, etc., these tools are, to a large extent, policies that spell protectionism.<\/p>\n

Has the pandemic triggered a higher degree of protectionism, making trade and cooperation less attractive? While for some countries, that may be the case, however, there are countervailing trends in one of the paradoxes of participating in global value chains, that will increase incentives for more cooperation.<\/p>\n

Although there were factors contributing to a slowdown in the expansion of GVCs pre-COVID19 including shifts in global demand, reshoring, overall decline in economic growth, especially investment, reversal trade reforms and recent increases in protectionism, regional integration seemed to\u00a0\u00a0 support the expectation that GVCs are unlikely to disappear automatically.<\/p>\n

There are nations that lack adequate domestic resources, to feed and clothe their population. Every nation has a material interest in other nations\u2019 economic well-being because mismanagement of one country\u2019s resources hurts all other nations too. Essentially, firms in developing countries can significantly gain productivity through participation in GVCs – a\u00a0 1% increase in GVC participation is estimated to boost per capita income by more than 1%, or much more than a 0.2%<\/a> income gain from standard trade.<\/p>\n

P<\/strong>aradoxes of Global Value Chains<\/strong><\/h2>\n

 <\/p>\n

\u201cWhen all this is done \u00a0(the current crisis), \u00a0we will have a discussion on globalization. There are negative effects of globalization, but this also shows that we\u2019re all in this together. The answer to the questions that are raised should not be a plea for less globalization. We have everything to lose if we roll back globalization.\u201d\u00a0 <\/em><\/strong>\u00a0<\/em>A<\/em>lexander<\/em> De<\/em> C<\/em>roo,<\/em> B<\/em>elgium\u2019s<\/em> deputy<\/em> prime minister<\/em> and<\/em> finance<\/em> minister,<\/em> 25<\/em> March<\/em> 2020<\/em><\/a><\/p><\/blockquote>\n

According to UNCTAD\u2019s research, the majority of developing countries are increasingly participating in GVCs. The developing-country share in global value-added trade increased from 20% in 1990 to<\/a> 30% in 2000 to over 40% today<\/a>, even though many poorer developing countries are still struggling to gain access to GVCs beyond natural resource export.<\/p>\n

There is also the danger that some countries could remain stuck in performing lower value-add links of the chain, leading to unequal profit distribution. As the standard models of international trade are based on comparative advantages, they mostly deal with final goods. Global value chains\u2019 fragmented international process has significant implications for the distributive effects of trade: economic actors at the downstream end of the value chain tend to benefit the most.<\/p>\n

Furthermore, GVCs have also been cited as contributing to harmful effects on the environment. The main environmental costs of GVCs are associated with the growing, more distant trade in intermediate goods compared with trade in final goods. \u00a0This leads to higher carbon dioxide (CO2) emissions from transportation (relative to standard trade) and excess waste from the packaging of goods.<\/p>\n

While the world is taking all possible actions to address the health crisis, this will not change the fact that climate change will continue to accelerate, and that inequality and poverty will continue to exist. Failing to address these issues altogether will aggravate the crisis as they are linked one way or another. Therefore, economic cooperation in these priority areas would go a long way in improving the lives of everyone across the world.<\/p>\n

\u201cAny slowdown in manufacturing in one part of the world will have a ripple effect in economic activity across the globe because of regional and global value chains.\u201d <\/em><\/strong>\u00a0<\/em>UNC<\/em>TAD<\/em> Secretary-General Mukhisa<\/em> Kituyi<\/em><\/a><\/p>\n

T<\/strong>urning to Sustainable Value Chains<\/strong><\/h2>\n

As regional value chain links are increasingly becoming more important than global ones, especially in North America, Europe, and South-East Asia, it is also clear that international trade (more so than regional trade) will continue to persist despite any tendency to close trade borders due to the pandemic.<\/p>\n

GVCs have long been considered by policymakers in the design of trade policies, though Free Trade Agreements (FTAs) have also evolved in terms of content. Non-trade objectives such as sustainable development have increasingly been included to enhance economic fundamentals with social and environmental protection provisions. Environmental provisions in trade policies are increasingly linked through preferential trade agreements (PTAs), and the number of FTAs that include labor provisions has been growing in the last two decades<\/a>.<\/p>\n

The ability to restore nature\u2019s resources to provide for humanity requires that the production and consumption system be more sustainable. To be sustainable, the production and consumption system must be circular and regenerative, which can only be achieved by collaborating with all economies participating in the value chain.<\/p>\n

Although this may prove challenging at this current juncture, closing the economy completely will only lead to adverse impacts, more so for developing countries as they will have to restructure their revenue stream coming from GVCs which have been significantly contributing to their growth of average income and poverty alleviation.<\/p>\n

To make the situation less severe than what has been speculated could happen with increasing deglobalization, Sustainable Value Chains (SVC) can complement labor market policies to help workers, and employers ensure that compliance with labor regulations, and environmental protection measures are met.<\/p>\n

Sustainability standards play an important role in SVC. As a new regulatory form, Voluntary Sustainability Standards (VSS) set social and environmental standards for transnational production, and the system often operates certification programs to verify compliance in GVCs. The extent to which GVCs can affect Sustainable Development Goals (SDGs) can be defined by answering two questions:<\/p>\n