DEPUTY DIRECTOR-GENERAL YONOV FREDERICK AGAH
Ladies and gentlemen, I am honored to have the opportunity to speak to you on the occasion of the 10th Asian Logistics, Maritime and Aviation Conference. Our hosts deserve credit for organizing this event despite the trying times that we are living through as a result of COVID-19.
Logistics, maritime transport and aviation collectively form the backbone of the physical infrastructure of world trade, delivering goods to consumers around the world while facilitating efficient production through Global Value Chains (GVCs). Businesses in this sector have faced tremendous challenges during the pandemic, but they have also adapted in remarkable ways that promise to make them more productive and profitable in the future. Through their efforts, trade has played a critical role in responding to the pandemic by allowing countries to access vital medical supplies, many of which are produced in Asia. On behalf of the World Trade Organization, I would like to share with you some perspectives on the short-term impact of the crisis for your industry and the wider world, as well as some ideas on how governments, international organizations and the private sector can work together to secure a brighter future over the longer term once COVID has been beaten.
The COVID-19 pandemic delivered a massive shock to global economy, causing an unprecedented public health crisis and triggering the most severe recession in nearly a century. According to WTO statistics, world merchandise trade was down 21% in US dollar terms and 17% in volume terms in the second quarter compared to the same period last year. Services trade was hit even harder, dropping 29% in dollar terms and 23% in volume terms over the same period. This includes transport related services such as aviation, sea shipping and logistics.
In light of these developments, the WTO issued an updated forecast for world trade on the 6th of October, predicting a 9.2% decline in merchandise trade for 2020, accompanied by a 4.8% contraction in world GDP. This trade performance would be the worst since the financial crisis over a decade ago, while the GDP decline would be worst since the great depression. Trade is expected to rebound in 2021 with a 7.2% expansion accompanied by 4.9% GDP growth, but this would still leave trade and output well below their pre-pandemic trends.
The estimated trade decline for 2020 is less severe than analysts feared earlier in the year, but the projected recovery next year is weaker than expected. Despite signs of resilience in the third quarter, the outlook for trade remains highly uncertain, as many countries are being hit by second waves of COVID-19.
Although the pandemic reduced trade in all regions, Asia was least affected of all. Exports declined 24% in Europe and 22% in North America in the second quarter, but Asia’s shipments were only down 6%. On the import side, Europe and North America were down 19% and 15%, respectively, but Asia was only fell 7%. The smaller declines reflect the lower incidence of COVID-19 in Asia as well as the resilience of the region’s supply chains.
Given the unusually high level of economic uncertainty at the moment, the WTO considered different trajectories for trade in its latest forecast. Under an optimistic scenario, second waves of COVID would be better managed and vaccines would be available sooner. This could add 3 percentage points to trade growth in the coming year. On the other hand, a pessimistic scenario would see slower GDP growth due to a strong COVID resurgence and limited availability of vaccines. This could slash trade growth by up to 4 percentage points in 2021. Elements of both scenarios appear to be in play at the moment, which suggests that the actual outcome will be somewhere in between.
While the transport and logistics industries may be under less strain now than they were a few months ago, they continue to face huge challenges. To turn these challenges into opportunities requires strategic thinking and a favorable environment for international trade.
Over the last two decades, 80 percent of world trade has taken place in the context of production networks, with transport and logistics acting as the “glue” that holds them together. The pandemic has highlighted the critical role that these services play in keeping supply chains functioning. A hard lesson from the pandemic is that the vulnerability of supply chains can and should be anticipated. In particular, practices such as just-in-time production, sourcing from a single supplier, and relying on customized inputs with few substitutes may amplify the disruption of external economic shocks like COVID-19.
Like other industries, the logistics industry has recently undergone a profound digital transformation, and the pandemic has only accelerated this process. Digitalization and paperless supply chains are creating a “new normal” in transport and logistics while posing new challenges for governments, such as the stability of operations, cybersecurity, and the availability of skilled workers.
Given the role of transport and logistics in providing inputs for other economic activities, shocks experienced in this industry usually have broader economic and trade repercussions. Likewise, strategies to address issues facing the transport and logistics sector should rely not only on the efforts of the industry itself, but also on government policy. International cooperation is necessary to improve the predictability of the trade environment where shipping lines, air carriers and logistics providers operate, and the ideal forum to advance these concerns is the WTO.
Recognizing that unilateral trade actions damage the global economy, WTO Members choose to cooperate within the multilateral trading system which provides rules-based, transparent and predictable conditions for trade in services. A group of WTO Members recently launched an initiative towards greater cooperation on domestic regulation of services. Negotiations on e-commerce could also have profound implications for both goods and services trade. Should they succeed, these initiatives would enhance transparency and efficiency in services trade and benefit the transport and logistics industry.
Despite the incremental progress in negotiations in recent years, there are reason for optimism about the WTO’s ability to deliver these and other needed reforms. In many ways, the global trading system has proven surprisingly resilient during the pandemic — more resilient than anyone predicted. After initial disruptions, global supply chains largely adapted and goods continued to flow across borders. Early export bans have been repealed, particularly with respect to food items. Almost a quarter (22%) of pandemic-related trade-restrictive measures implemented by G20 economies since the start of the crisis have been removed. Predicted shortages of raw materials, consumer products, and food supplies — with some notable exceptions — have also not materialized.
In its monitoring activities, the WTO documents new trade measures adopted by Members since the start of the crisis. These efforts show that governments quickly added measures to facilitate imports of key supplies, including reduced tariffs on urgently needed goods, and simplified customs procedures. One of the most important — if somewhat under-appreciated — tools to accomplish this is the WTO Trade Facilitation Agreement, which helps countries streamline and automate their customs procedures. By creating an increasingly contactless trading system, the TFA has allowed many economies to work around the physical limitations necessitated by the pandemic and thereby to minimize supply chain disruptions. In contrast, countries that have been slow to reduce bureaucracy have fared less well.
Of the several hundred COVID-specific measures compiled by the Secretariat, nearly two-thirds have been trade-facilitating. A recent survey on early pandemic response by members showed significant improvements in access to trade-related information. Enhancements were also registered with respect to traffic in transit, essential for the smooth circulation of COVID-critical medical goods.
The COVID-19 pandemic presents a major challenge for the trading system but also a major opportunity. Just as the pandemic can accelerate economic reform — from remote working to reliance on e-commerce — so too can it accelerate trade reform. We need to ensure that the pandemic does not derail hard-won development gains made by many countries all over the world. A global challenge such as COVID needs a global response, and the WTO is the appropriate forum to advance these issues.
Keeping international markets open to trade is an essential step to ensures that a strong economic recovery takes hold after the pandemic. Likewise, a healthy trading system is a prerequisite for a healthy transport and logistics sector. I urge you to support your governments in engaging with the WTO and to continue to improve the system for the benefit of all.