Economic research and trade policy analysis
Way forward and policy recommendations
With regard to trade multilateral organizations can work closer together to prevent a wider decoupling in the international economy. In the 1930s the division of the world economy into rival economic blocs led neither to prosperity nor peace. That experience is at the foundation of the rules-based multilateral trading system.
The Crisis in Ukraine
This note examines the implications of the crisis in Ukraine for global trade and development. It highlights the importance of the supplies of food energy and certain industrial inputs from Russia and Ukraine and explores how the war is causing severe risks to food and energy security as well as exacerbating supply chain difficulties. Simulations from the WTO Global Trade Model indicate that global GDP and trade growth could be reduced by up to 1.3 and 2.2 percentage points respectively with effects concentrated in Europe and Africa. This note further shows that if the war were to cause a disintegration of the global economy into separate blocs the income losses would be severe especially for emerging and developing economies. This highlights the importance of the rules-based multilateral trading system not least because the WTO provides functions that can help to cushion the impact of the crisis.
Executive summary
The crisis in Ukraine has created a humanitarian crisis of immense proportions and has also dealt a severe blow to the global economy. The brunt of the suffering and destruction are being felt by the people of Ukraine themselves but the costs in terms of reduced trade and output are likely to be felt by people around the world through higher food and energy prices and reduced availability of goods exported by Russia and Ukraine. Poorer countries are at high risk from the war since they tend to spend a larger fraction of their incomes on food compared to richer countries. This could impact political stability.
Multilateral system: mitigating the effects of the crisis and preparing for a post-war global economy
First the war in Ukraine is impacting the whole world. As such it is not a local war with local effects only. It therefore needs to be viewed and treated in the context of global trade and development. This is likely to result in a move for reshoring near-shoring and for ‘friend-shoring’ – either making strategically important goods at home or procuring them from allies. This will have implications for global trade and development.
Acknowledgments
The Global Value Chain Development Report 2021 the third in the series draws on contributions from 25 background papers presented and discussed at the First Authors’ Workshop for the Global Value Chain Development Report 2021 during 8–9 October 2020. The drafts of the report’s six chapters were presented at the Chapter Authors’ Workshop for the Global Value Chain Development Report 2021 during 26–28 May 2021 (Appendix). The Asian Development Bank (ADB) organized both online workshops. The editors thank the authors of these papers and the chapters and the discussants and participants at the two workshops for their insightful comments and suggestions.
Executive summary
The health and economic crisis caused by the COVID-19 pandemic has been a massive stress test of the world trading system delivering unprecedented shocks to global supply chains and trade relations among countries. In 2020 the value of global trade in goods and services in nominal dollar terms fell by 9.6 per cent while global GDP fell by 3.3 per cent in the most severe recession since World War II.
Conclusion
The health and economic crisis caused by the COVID-19 pandemic has highlighted both the vulnerabilities and the strengths of the interconnected global economy which has at its core the multilateral trading system. This report has examined the resilience of the global economy to crises how trade plays a pivotal role in developing resilience and in what ways the global trade system can be improved to allow countries to prepare for cope with and recover from crises.
Acknowledgements and disclaimer
The World Trade Report 2021 was prepared under the general responsibility and guidance of Anabel González WTO Deputy Director-General and Robert Koopman Director of the Economic Research and Statistics Division. The report was coordinated by Eddy Bekkers and José-Antonio Monteiro. The authors of the report are Marc Auboin Marc Bacchetta Francesco Bellelli Cosimo Beverelli Eddy Bekkers Emmanuelle Ganne John Hancock Katharina Laengle Kathryn Lundquist José-Antonio Monteiro Roberta Piermartini Yves Renouf Victor Stolzenburg and Ankai Xu (Economic Research and Statistics Division).
Technical notes
WTO members are frequently referred to as “countries” although some members are not countries in the usual sense of the word but are officially “customs territories”. The definition of geographical and other groupings in this report does not imply an expression of opinion by the WTO Secretariat concerning the status of any country or territory the delimitation of its frontiers nor the rights and obligations of any WTO member in respect of WTO agreements. The colours boundaries denominations and classifications in the maps of the publication do not imply on the part of the WTO any judgement on the legal or other status of any territory or any endorsement or acceptance of any boundary.
Foreword by the WTO Director-General
The COVID-19 pandemic has neatly illustrated the multi-faceted ways in which globalization touches our lives. The deep interconnections of travel trade and financial flows that characterize our era allowed the novel coronavirus and its associated economic shocks to spread around the world in a matter of weeks. Earlier pandemics took months even years to go global.
Recent Trends in Global Value Chains
The last few years have been challenging for globalization. While the world has benefited from the fragmented networks of production-sharing known as global value chains (GVCs) concerns are being raised over their risks. Chapter 1 of the Global Value Chain Development Report 2019 pointed to a rise in protectionism in general and a brewing trade conflict between the United States (US) and the People’s Republic of China (PRC) in particular. More obstacles have since emerged from the sudden and simultaneous closure of borders due to the COVID-19 pandemic that exposed vulnerabilities in some supply chains rattling policymakers (Chapter 5). Despite these challenges GVCs—for supporters and detractors alike—remain a reality that cannot be ignored. Indeed the very vaccines crucial to ending the COVID-19 pandemic rely on multinational partnerships for the over 200 components that go into them (Irwin 2021).
Preface
Global value chains (GVCs) have brought about revolutionary changes in international trade industrialization and economic development. The GVC story is still rapidly unfolding as vividly demonstrated by the supply chain crisis particularly for semiconductors and other components that broke out during the COVID-19 pandemic causing further anxiety. But beyond what is hoped will be a short-term tremor a radical shift in these chains is underway as more of them move beyond traditional production processes to encompass services and other intangible assets. In recognition of this Beyond Production is the theme of the Global Value Chain Development Report 2021 the third report in this biennial series. The most significant feature of this “second unbundling” associated with the proliferation of GVCs in the world economy is the separation between production and nonproduction tasks. So looking at GVCs not just in terms of manufacturing production but also from the perspective of their beyondproduction components such as intangible assets digital platforms and intellectual property can deepen our understanding of the critical role of GVCs in the global economy.