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2021 has been another year of disruption, although predictions of trade collapse have not eventuated. Global merchandise trade fell 5.3% last year but has been estimated to rebound by 10.8% in response to fiscal and monetary stimuli by governments and central banks in all the major economies.
But there are many challenges still to be met, and the solutions in many cases remain elusive. This is the underlying narrative in our latest International Trade – Trends & Insights publication for 2021.
The World Trade Organisation continues to flounder with no clear pathway in prospect to address the concerns raised by the US and the ongoing broader need for reform. The postponement of the 12th biannual WTO Ministerial Conference (MC12) because of the Omicron variant will scarcely help. Although it may avoid embarrassment for the WTO, unless we assume that MC12 would have delivered a resolution on fisheries subsidies – which would be a generous assumption, given that the talks have been running since 2001 and difficult issues remain.
The change of administration in the US has taken some of the heat out of the US-China dialogue but serious tensions remain, as do most of the Trump-era tariffs. And hopes that President Biden might bring the US back into the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) tent seem likely to be disappointed.
For New Zealand, a trade war between our first and third largest trading partners has no upside so any thaw is positive. Hence we have to hope that something solid comes out of the Biden-Xi Jinping virtual meeting in November. It is also worth noting a report by the American Chamber of Commerce in Shanghai that 77% of US manufacturers in China have no plans to relocate production, and that none of the remaining 28% were re-locating to the US.
A developing theme which we expect will continue to gain momentum is the use of both trade agreements and domestic law to advance non-trade, not-strictly-trade or fair trade purposes. This is not surprising given the urgent need to respond to climate change, the growing pressure on natural resources and an increasing focus on the relief of poverty, gender equality, and indigenous and worker’s rights.
Examples of domestic laws are a proposal under consideration by the EU to impose a Carbon Border Adjustment Mechanism (CBAM), and a draft regulation by the EU which would require the importers of products identified with deforestation (beef, timber, palm oil, soy, cacao and coffee) to provide evidence that their production had not contributed to forest degradation.
Modern slavery laws have also been passed in several jurisdictions, including Australia (with New Zealand likely to follow). The Australian Modern Slavery Act captures businesses operating in Australia with consolidated revenues of more than AU$100m – which means that a number of New Zealand companies are caught. They are required to publish an annual Modern Slavery Statement explaining how they proactively manage and mitigate this risk of “modern slavery”, forced labour and other severe worker exploitation in their supply chains.
This type of mandatory disclosure echoes the mandatory climate risk disclosure regime now enacted in NZ legislation – the first country in the world to do so. Disclosure of these risks requires businesses to look hard at the forecast impacts of climate change on their own markets, suppliers and operations, which is to be encouraged as global trade uncertainty, COVID and climate change collaborate for an unpredictable environment.