Business Twenty (B20) Summit
26 October 2020
Redesigning multilateralism for a new age
The pandemic is deepening multilateralism’s fault lines and fractures. It highlights a key contradiction at the heart of the current multilateral order – COVID-19 has confirmed the interdependence implicit in the Sustainable Development Goals but is a sharp indictment of multilateral efforts to achieve those goals over the past five years, indeed to achieve similar goals over the past 30 years.
Multilateralism is in crisis, leaving doubts whether this crisis can be a catalyst for a better world. Economic resilience will not be achieved by closing borders, but rather by diversifying origin and destination markets, and by finding new channels to empower more people and countries to create and capture greater value from globalization for their own benefit. Multilateral trade integration simply no longer offers that promise of gainful globalization. The space for South-South value-chains are an opportunity, and for diversification and upgrading in developing economies. But for the multilateral system to play a role in this, it must better empower the weak and vulnerable.
We must also focus less on defending “the system” and instead work to stitch together the pieces of a shattered multilateralism by concentrating less on hard rules and negotiation and more by building goodwill through “soft-law” processes. This means collectively grappling with the holistic complexity that the SDG agenda presents us and harnessing the possibility for frank exchange focused on consensus building without needing to fashion consensus into legally binding rules and provisions.
We need to adjust our institutions to recognize the interdependence exposed by the pandemic. For example, it shows that environmental protection is essential aspect of public health. Halting deforestation and wildlife trafficking reduces vectors for the crossover of dangerous new zoonotic viruses. Indeed, environmental measures within trade are closely related to health concerns. 13% of all environmental measures notified to the WTO are SPS measures, the second most common type.
But we must also adapt our multilateral approaches to a changed globalization shifting our focus from “just in time” efficiencies to “just in case” preparedness. The old model of international production implicit in the export-led growth model is being re-organized making supply chains shorter, greener & more locally produced, more sanitary and sustainability requirements, more teleworking, more demand by digital means, less packaging, etc.
COVID-19 is the inflection point accelerating a transformation in international production underway for a decade already -- and multilateral cooperation needs to adapt. The new industrial revolution, the policy shift towards more economic nationalism, and sustainability trends will all have far-reaching consequences for the configuration of international production in the decade to 2030. We observe a trend towards not just shorter value chains, but higher concentration of value added and declining international investment in physical productive assets. That will bring deep challenges for developing countries in particular. For decades, their development and industrialization strategies have depended on attracting FDI, increasing participation and value capture in GVCs, and gradual technological upgrading in international production networks.
The expected transformation of international production, despite its inherent challenges, also brings opportunities, such as resilience-seeking investment, building regional value chains and entering new markets through digital platforms. In this new context, a degree of rebalancing towards growth based on domestic and regional demand, and promoting investment in infrastructure, domestic services, the green economy and the blue economy is necessary.
For private sector, it will be crucial to shift from a focus on export-oriented efficiency-seeking investment in narrowly specialized GVC segments, to an “export-plus-plus” focus, meaning investments in production for regional markets and a broader industrial base. For example, large-scale industrial investors with “Big infrastructure” will increasingly make room for small-scale manufacturing facilities and services with “Lean infrastructure”. This too will fundamentally change the nature of business’ stake in multilateralism itself.
