G20 Trade and Investment Ministers Meeting, Remarks by Mari Pangestu

G20 Trade and Investment Ministers Meeting

October 12, 2021

Sorrento, Italy

As prepared for delivery

The main message I would like to share today is how trade and investment are the means for a greener, more resilient, and inclusive recovery and growth, which is very much in line with the G20 Trade Ministers' leadership on this objective.

Let me start with the context of the current trade recovery and the importance of resilience.

Trade declined steadily at the start of the pandemic but recovered quickly and was back to pre-pandemic levels within six months. The World Bank's preliminary projections, in line with the World Trade Organization (WTO), show that global trade growth may rebound to 9.2% in 2021 and could slow down to 6.7% in 2022. Risks related to supply chain bottlenecks remain. Furthermore, the recovery has been uneven. Countries with access to vaccines and those better integrated in Global Value Chains (GVCs) are recovering more quickly.

What does that mean for the role of trade in resilient recovery?

First, ensuring that trade plays its key role in a resilient recovery means maintaining open trade and investment regimes, diversifying market access, and implementing domestic trade and investment facilitation reforms. It also means making sure that trade flows for essential goods such as vaccines and medical supplies remain uninterrupted. The private sector has begun building more resilient supply chains through nearshoring and onshoring, and diversifying sourcing and products, including services.

Resilience in trade will also come from deepening GVCs by reducing trade costs and distortions. The World Bank's recent report shows that trade costs are higher for emerging markets and developing economies compared to advanced countries. Tariffs are only a small portion of that cost. The bulk comes from inefficient shipping, logistics and infrastructure, as well as complex trade procedures and excessive non-tariff barriers at the border. Simplifying these procedures and leveraging digital technologies is a quick win and a costless stimulus.

The second key point is inclusion. Trade is good but how do we make it work for all? Whilst the evidence is clear on how trade has and will continue to be a critical driver of poverty reduction, the evidence also shows that the distribution of gains has been uneven. The problem is not trade policies, but rather the lack of complementary policies. This is not new but if we don't get it right, besides being unfair, it undermines public support for trade. G20 Trade Ministers are fully aware of this issue. In the joint World Bank and WTO report we show that gains from trade can be shared more widely if we also boost labor mobility, upgrade skills including digital skills, advance gender equality, facilitate SMEs linkages to GVCs, and improve connectivity infrastructure.

The third key point is that while trade can exacerbate climate change, it must also be part of the solution. Trade and investment can foster the spread of environmental goods and services to reduce emissions, such as weather resistant seed varieties, and it can facilitate the transfer and lower the cost of climate friendly technologies, such as renewable energy.

Responses to climate change will also affect competitiveness. Exporters will need to be part of sustainable supply chains. Buyers are increasingly demanding green products and investors renewable energy sources to determine the location of their investments. This will require an ability to track and reduce carbon emissions across the whole supply chain. We need to ensure that developing countries have the tools and institutions to enable them to identify and demonstrate carbon competitiveness. How does one show that despite the longer distance, the carbon intensity of tulips sold in Europe is lower when they are from sunny Ethiopia, than those grown in green houses in the Netherlands?

The rules governing environmental trade in goods and services, and carbon intensity measures and standards, need to be established multilaterally, and developing countries need to participate to ensure that the standards that are set do not unfairly discriminate against them.

The challenges in the poorest countries are particularly stark and we are working to support them in the recovery, both through immediate measures such as vaccine access and longer-term efforts to help developing countries prepare for the post-COVID world. A successful replenishment of IDA, our fund for the poorest, will be crucial in this regard and we appreciate your strong support as we head into the final stretches of the replenishment.

The role of trade in a greener, more resilient and inclusive recovery will not be easy. It certainly will not be possible without a strengthened multilateral trading system. It is in the interest of all nations to have a WTO that not only underpins an open, rules-based and fair trading system, but one that is fully equipped to address the challenges of the 21^st Century. This starts with a successful outcome at the upcoming 12th WTO Ministerial Conference (MC12) and the way forward for strengthening the multilateral trading system.

The G20 Trade Ministers have the opportunity to provide leadership to ensure that trade and investment results in a greener, more resilient and inclusive recovery for the whole planet and all its people. The World Bank Group is ready to work with you all towards this end and we look forward to working with you to support the Trade and Investment Working Group agenda of the G20 Indonesian Presidency.

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