MIL-OSI Economics: DDG Zhang: Cooperation in trade and investment needed to revitalize world economy

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Source: World Trade Organisation

Excellencies, 
Distinguished panellists,
Ladies and gentlemen,

Good morning.  I am very pleased to join you today and would like to applaud UNCTAD’s efforts to organize this high-level World Investment Forum — as well as this session on “The Investment, Trade and Development Nexus” together with the WTO.  This year marks the third time that we hold this session together. 

I would like to begin by reassuring that trade and investment have been phenomenal drivers of economic growth and poverty reduction in many parts of the world over the past 30 years.  In particular, participation in global value chains has been a force for economic diversification, job creation and development.  With servicification and digitization, global value chains have made trade and investment flows increasingly interlinked and mutually reinforcing. They are the “two sides of the same coin”. 

The imperative to recover from the COVID-19 pandemic has made this twin role of trade and investment flows more important than ever before. The pandemic has brought massive disruptions to all aspects of our social and economic lives. In particular, it has acted as a massive ‘stress test’ both for the world trade and investment — causing unprecedented shocks to global value chains.  In 2020, the value of global trade in goods and services fell by 9.6%.  Global investment was hit much harder — with FDI flows falling more steeply, by 35%.  Greenfield projects in developing countries which are key for industrial and infrastructure development fell by 42% in 2020. 

Today’s hyper-connected global economy has made the world more susceptible to shocks — but it has also made it more resilient when they strike. The multilateral trading system has again stood the test of time more than many expected as its core principles and rules helped to prevent the world from sliding into a full-fledged protectionism.

Specifically, the reality check shows that while the pandemic brought strains on the global value chains, and there are problems, e.g., semiconductor scarcity and port backlogs, there has been no such as a total breakdown. The dip in world merchandise and services trade during the pandemic has been significantly smaller than the one during the 2008-09 global financial crisis.  Goods have continued to flow across borders, as many economies have gradually begun to recover albeit unevenly. Services trade such as sectors related to travel and leisure, business, financial and telecom services witnessed growth of 6% in 2021 due to their ability to go online. Foreign direct investment flows rebound less quickly than trade flows largely because investors’ confidence is more prone to uncertainty.

With technological advancement and waves of digitization, trade and the investment nexus become even stronger. They serve as twin engines to power the world economic recovery from the pandemic. Particularly, they are crucial for developing and least-developed countries with small internal markets and limited ability to spur recovery through fiscal stimulus packages. They are vital to operate the much-needed shift towards a more sustainable, greener, and digital economy — to build forward better and enhance resilience. This is a pressing imperative in the face of increasingly frequent and more intense natural and man-made disasters.

On the trade front, it cannot be emphasized enough of the important enabling role of the services sectors. Services and services trade are glue and inputs to GVCs with increased value addition to GVC exports. On the investment front, FDI patterns have shifted towards more resilient and diversified supply chains as well as sizeable recovery investment packages, notably on the energy transition, green technologies, digital and physical infrastructure, and health. Therefore, support for manufacturing, services, digitization and environmental sustainability are priorities and need to be elevated in the national development policy agenda.

At the same time, expanding trade and investment and strengthening economic resilience will require more trade and investment cooperation — at the multilateral, plurilateral and regional level. A transparent, predictable, and business-friendly environment is key for trade and investment to flourish. Next to existing WTO Agreements, ongoing “Joint Statement Initiatives”(so-called ‘JSI’) on Services Domestic Regulation, e-Commerce, and Investment Facilitation for Development aim at reducing trade and investment costs, and enhancing transparency and predictability of national regulations and administrative procedures. WTO recent studies have shown that there is a positive correlation between reduction of red tape and the improved economic performance and gains.

Let me briefly elaborate on the negotiations on the Agreement on Investment Facilitation for Development.

The initiative aims to improve the overall investment and business climate — making it easier for investors to invest, conduct their day-to-day business and expand.  Since their start, participants have explicitly excluded market access, investment protection and investor-State dispute settlement from the negotiations. Special and differential treatment and technical assistance and capacity-building are built in as key pillars of the Agreement to benefit developing and least-developed Members in their implementation.

Discussions are currently ongoing among over one hundred WTO Members from all regions and at all levels of development. Participating Members in the initiative are aiming to achieve a concrete outcome by the next WTO Ministerial Conference to be held in Geneva in just over a month. Ultimately, facilitating investment is in everyone’s best interest.

Let me conclude with two brief remarks.

  • First, we will be able to overcome the current pandemic — and emerge stronger from it — only through more cooperation, more transparency and more capacity-building;
  • Second, we will be able to reduce the funding gap to achieve the Sustainable Development Goals only if trade and investment are facilitated to thrive jointly and expand sustainably. 

In both, the WTO and UNCTAD have a critical role to play.  I am therefore extremely pleased to see today that our two organizations stand ready to reinforce and deepen our cooperation to achieve these common goals.

Thank you for your attention.

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