Post-pandemic trade: let's build back better
25 June 2020: Trade worldwide has been pummelled as a result of COVID-19. But it is not all bad – 'build back better' is high on governmental agendas, according to Andrew Staines, UK Ambassador and Deputy Permanent Representative to the United Nations and the WTO.
The World Trade Organisation (WTO) forecasts a 13-32% drop in trade for 2020. That's up to one-third of trade that could disappear this year. What started as a global health crisis has morphed into an economic one, and international trade is taking a battering.
Andrew Staines is the UK's Ambassador and Deputy Permanent Representative (Economic) to the United Nations agencies in Geneva. He is also Deputy Permanent Representative to the World Trade Organisation. He points out that, although the forecasted drop in trade is alarming, worldwide trade volumes were already tailing off late last year due to geopolitical issues and slowing economic growth.
"The latest figures show that the fall in trade will be the largest on record but possibly towards the lower end of the WTO's range. It is worse for those industries with complicated supply chains and those that rely on cross-border activity, such as services and tourism," Staines says. "The impact of COVID is likely to result in trade falling more steeply here than in other sectors."
Not your average down-turn
We are used to seeing down-cycles ripping through the global economy every decade or so, but this is different. "This situation is much more like the economic risks that we faced in the late 1920s," he says. "That is the fear for the WTO: a chain reaction of measures. History shows us that all countries suffer when trade restrictions become widespread and endemic."
Staines's role at the WTO for the United Kingdom has him working with over 160 governments worldwide. "The fear in the WTO is that a series of restrictions on trade rolls back economic activity – we don't want a reoccurrence of the 1930s," he says. "If you are putting in place barriers to imports, or you are restricting exports in crisis situations, you need to be transparent about what you are doing, and you need to take the least trade-distorting approach, that is clearly backed by the science, and for a defined time horizon".
Worldwide government reaction to the crisis has been varied; the UK has emphatically not "pulled up the drawbridge" to trading cross-border. "We have not said we have to bring everything home. The opposite is the case. We are saying we need to make supply chains better, more diverse, and more resilient," he says. "Trade barriers erode business confidence and slows the investment needed to restart many economies."
One way to keep goods flowing in the future is to simplify and cut tariffs, something the UK has announced it will do as part of its future UK Global Tariff (UKGT) regime. "The new UK Global Tariff regime is simpler, tailor-made for the UK and will bring some tariffs down," says Staines. "This will lower costs for businesses, ensuring they can compete on fair terms with the rest of the world, as well as keeping prices down and increasing choice for consumers."
The UKGT will replace the EU's Common External Tariff, which applies until 31 December 2020. In effect, through the UKGT, the UK Government has simplified and liberalised many tariffs applied on goods imported into the UK. 'Liberalised' means the tariff has come down, in some cases reduced to zero. 'Simplified' means the tariff has been rounded down or banded. For some complex tariffs, it is now expressed as a single percentage. In addition, there is tariff relief on some goods for tackling COVID-19, and this will be reviewed throughout 2020 – although it will continue to apply in 2021 if necessary.
Encouraging the green economy
The UKGT also aims to "build back better" and in a more resilient way. For example, by reducing tariffs on green goods – like LED lights or the parts required for wind turbines. "We have reduced the tariffs on those to help deliver upon our environmental and climate change objectives, including our commitment to reach net-zero emissions by 2050," says Staines.
It is all part of the desire to see a green and fair recovery while maintaining the flow of goods and services across borders, he explains. The UK wants to see other WTO members follow suit in removing tariffs on clean energy and products to support the circular economy.
"The crisis has shown us that, for these big challenges, you actually need more engagement internationally and not less. To start with, this has focused on the health side," says Staines. "Then you start talking about the other big global challenges like climate. We have to come together over this."
Innovation will also be vital to the global economic recovery and these significant global challenges that confront us. "This is about those working to overcome this pandemic, whether identifying a vaccine, creating new therapeutic drugs and healthcare treatments or finding new ways for us to work and live virtually and digitally," Staines says. However, he points out that longer-term prospects will depend on improving productivity. "To do so, we must promote and support innovation".
The crisis has also put the experts squarely in front of us all. "You need the experts to make sure the solutions you are working towards are the right ones," says Staines, "but you can't do that in isolation – scientists need the political will behind them to find solutions. That is what we do here in Geneva. It is the technical hub of the United Nations."
The role of accountants
WTO and government aside, Staines, as a Chartered Accountant, is clear that the profession has a particular role in recovery. "We approach things in an analytical way, within a framework, combined with strong leadership skills. Accountants can define the medium-term strategy for success. But for any strategy to be effective, particularly during volatile and uncertain periods, this needs to be combined with the underlying detail."
This is an economic, liquidity and solvency crisis all rolled into one, Staines explains. As a result, he believes accountants must be front and centre in the effort to take us out of the immediate crisis. The crisis will also shake up the way we think about systemic risk; it will no longer be a box-ticking exercise.
"We have clearly struggled with the challenge of mapping out existential and non-linear risks," he says. "We need to approach these differently. It can feel elusive, but we need to rethink our frameworks, how we collect data and how we game out and prepare for the different scenarios."
On the upside, he says there are some good signs. COVID-19 has already driven innovation and creativity, even in sectors that are not traditionally seen as being on the technological frontier. "The crisis has accelerated the transition to more virtual and digital interaction," he says. "This is not surprising. The lesson from history is that times of crisis and upheaval can be huge drivers of innovation. This is the first global crisis in the age of big data, and so we might see significant advances in the area of artificial intelligence, for example." That is something to build on.