A look back at 2022 underscores the extent to which the covid pandemic and the war in Ukraine dominated the trade landscape. In 2023, Russia’s continued aggression and its impact on Ukraine’s productive capacity and on struggling supply chains as well as punitive trade sanctions on Russia have contributed to make trade and investment a focal point of the recently concluded 2023 World Economic Forum at Davos.
Backdrop to the Trade Landscape in 2023
The COVID-19 global pandemic which began in 2020 created severe supply chain disruptions that lingered on into 2022. Supply chain disruptions impede the movement of goods, and of services, resulting in empty shelves, high prices for available goods, and the resultant challenges to productive activity, creating further shortages. Just as the world seemed to be emerging from the worst of these disruptions, Russia invaded Ukraine in February 2022. Prior to the war, Ukraine was a major agricultural exporter. In 2021, Ukraine supplied 46% of the world’s sunflower oil, 12% of its corn, 9% of its wheat, 20%of its rapeseed, and 17% of its barley. The World Food Programme, which helps to feed the world’s hungry, got about 40% of its wheat from Ukraine. Bombings and a Russian blockade of Ukraine’s ports disrupted that important trade, severing key supply chains and deepening global food insecurity. Meanwhile, as the aggressor, Russia became the target of escalating economic sanctions, including eventually on its oil and gas exports. Economic sanctions impose significant penalties for trading with Russia. Our still oil-dependent economies have been forced to absorb higher costs, in turn fueling inflationary trends.
Global attention is also increasingly turning to the existential threat of climate change. The climate clock is ticking down on the window to reduce greenhouse gas emissions and keep the world under the critical threshold of 1.5°C warming. Despite the continued growth in overall trade for 2022, this backdrop does not bode well for the trade landscape in 2023.
Issues to Watch in 2023
Trade and Climate Change
With the World Trade Organisation (WTO) not yet having reached consensus on trade-related initiatives to address the threat of climate change, the European Union has seized the forefront with the European Green Deal. This EU initiative aims to make Europe the first climate-neutral continent by 2030. The EU has established environmental and sustainability standards with which its trade partners will need to begin to comply. For 2023, these include strict labeling requirements, reduction of packaging and waste, and mandatory due diligence rules for companies which place specific commodities on the EU market that are associated with deforestation and forest degradation (e.g. soy, beef, wood, coffee, cocoa, and derived products such as chocolate and furniture). For developing countries and small producers these new rules will present challenges, although it is hoped that the EU will direct funding to support implementation. Larger trade partners are crying foul and accusing the EU of using the issue of climate change to impose new trade barriers.
The WTO and Climate Change
At the WTO, several initiatives on trade and environmental sustainability also aimed at addressing climate change had been developed by various members. They were, however, not adopted at the 12th Ministerial Conference in 2022. In addition to the broad approach of the Trade and Environmental Sustainability Structured Discussions (TESSD) initiative working to identify trade-related measures that can contribute to environmental sustainability goals, two other proposed initiatives target plastic pollution and plastics trade and phasing out the use of fossil fuel subsidies. The next opportunity to advance meaningful initiatives on this issue will be at the 2024 Ministerial Conference. Meanwhile, the issue remains on the WTO agenda.
WTO Agreement on Investment Facilitation
Discussions initiated in 2017 by a group of WTO members grew into the formal launch in September 2020 of negotiations to conclude an agreement on investment facilitation. The primary issue that this agreement will seek to address is the “resource curse”. The stated goals of the agreement under negotiation include improving the transparency and predictability of investment laws, strengthening the dialogue between governments and investors, reducing corruption, and supporting capacity building and technical assistance to developing and least-developed countries. A related challenge is how to effectively channel the capital that resides primarily in developed countries into developing countries for the profitable exploitation of their resources and skills. A true development dimension to these negotiations should incorporate support for countries to conclude investment deals that effectively balance investors’ contributions against the importance of these resources to the country’s sustainable development. It should also not impede governments enacting responsible laws for the benefit of their citizens. WTO Deputy Director General Anabel Gonzalez is hopeful that an Agreement can be concluded in 2023. This plurilateral agreement would not require full consensus by all WTO members.
Despite recent successes, the WTO remains in serious need of organizational reform. Still unresolved is the need to rebuild an effective mechanism for the settlement of trade disputes and arriving at a working definition of what it means to be a “developing country” in the WTO regime. Effective application of special and differential treatment (SDT) rules for developing and least-developed countries is being stymied by the current ability of countries to self-identify as “developing”. Under this status quo, emerging economies such as Brazil, China, and India hold equal entitlement to SDT exceptions from the WTO rules that would otherwise apply. Consequently, developed countries balk at proposals that would strengthen the SDT regime. While there is consensus on some key applications of SDT for the forty (40) least-developed countries, left in the lurch are the bulk of WTO members still struggling to reap the full benefits of membership.
Stay tuned for the next instalment of our “Trade Landscape 2023” series, where we will delve deeper into the current state of global trade and its future prospects.
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I am a seasoned international trade and customs attorney, and policy adviser for various companies and governments with a demonstrated history of successfully developing and implementing sustainable and dynamic trade programs. I am experienced in creating partnerships with various business-support organizations to drive compliance and growth in the international market.