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Driving Global Trade for Development

The global, rule-based trade regime that has helped pull more than a billion people out of poverty in recent decades is under pressure. Critics blame it for the loss of manufacturing jobs, environmental degradation, and disruptions to supplies of vital goods like food, medicine, and energy. Geopolitical tensions are rising. As a result, major players are raising barriers to trade and foreign investment while offering subsidies for domestic production.

The question now facing policymakers, business leaders, and international organizations: Can globalization be reshaped to accommodate legitimate national concerns while maintaining trade as an engine of green, inclusive, and resilient development? What are the new opportunities for developing countries to leverage trade for development?

World Bank Group President David Malpass sat down with Adam Posen, President of the Peterson Institute for International Economics, to discuss the rapidly changing global trade landscape, reshoring, and the risks and opportunities for developing countries.

00:00 Welcome and opening remarks

03:19 Fireside chat: The importance of trade for development and how to balance new principles to combine fair and efficient trade with domestic policies to boost resilience to trade-related shocks, secure access to essential goods, and curb GhG emissions.

31:41 Panel discussion: Challenges and opportunities for business and how developing countries can help firms continue to rely on trade and value chains to reduce poverty and inequality. 

1:15:34 Q&A 

1:25:36 Closing remarks: How to help enforce good principles for international trade in the 21st century

[Vicky Chemutai]

Good morning, everybody that is in the room with us today, as well as the virtual audience that is joining us through the World Bank livestream. It is an absolute pleasure to see all your faces. I see an eagerness to learn, but also to contribute to today's conference, so that's super exciting on our end. My name is Vicky Chemutai and I'm with Macroeconomics, Trade and Investment Global Practice with the World Bank Group. In case some of you accidentally wandered into this room, today's trade conference that has been jointly organized between the World Bank Group and the Peterson Institute for International Economics.

This trade conference primarily is going to focus on discussing issues, well, as you can see in the name, driving a global trade for development. Specifically, our goal today is to discuss the recent geopolitical and trade tensions that threaten to undermine the security of the rules-based trading regime and how trade can contribute to the engine of growth, especially for developing [inaudible]. Because it is also Valentine's Day, I cannot help myself but give a little bit of amateur poetry to kick us off. So here it goes. Roses are red, violets are blue, globalization has brought forth so many tangible and intangible gains. So why is its perception constantly merged with so much gloom? Can trade provide some of the solutions thwart off these global development blues? The end.

So to dissect these issues, we are absolutely delighted to have two presidents here with us that need little to no introduction. The first president obviously is David Malpass, who is the president of the World Bank Group, he has been with us since 2019, and our second president is Adam Posen, who has been with the Peterson International Institute since 2013. It is an absolute pleasure to have you both. Please do come onto the stage. And while they do, while they're sitting, a little bit of housekeeping. We do have our set of experts that are online ready to answer all your questions. This is in French, English, and Spanish. Do make use of that live chat and because this is such a big conference discussing trade issues, don't be shy. Fire away. This is an opportunity for everybody to get those hot questions answered. David, please do take the fire chat away. Can globalization be reshaped to accommodate national interests while maintaining trade as an engine for green resilient and inclusive development?

[David Malpass]

Thanks very much and thanks for the Valentine's poem as well, and really good to be here with Adam Posen. We're going to have a super intellectual conversation because the world's at this point where global growth isn't enough. We recognize that trade is part of the solution, but we don't have the exact modalities to get there. I'll state a view and then I'm really interested in Adam modifying it and expanding on it as he has done in really good writings about trade. We know from economics that trade is a powerful way to specialize and that includes across borders. And so, as people look at the word globalization, it's a necessary part of being on one planet and it means that there's specialization across country boundaries and indeed across continents. We need to have continents trading across oceans in order to have the full benefit from economic efficiencies.

Then that gets us into how far do you want to go with it in terms of dependency on Russia for energy or dependency for chip making on individual countries. There needs to be a rational thought process of where do you want to go with your trade supply lines? Maybe that got overdone, certainly it did get overdone in the 2000s, 2010s, and even maybe before that in terms of the dependence on Russian energy. If we take that as the context, then we need to recognize there's this huge value to people around the world from trading within their village, with a neighboring village within their nation, and then especially to keep in mind that cross border trade is critical to specialization. We can't go to the point of saying self-sufficiency country by country is a workable economic model. I'll state that as the premise and then that leaves us with maybe part of today's discussion is to push back… My worry is that we see countries around the world putting in export controls, putting in subsidies that are meant to provide self-sufficiency for their domestic production, but they end up being super expensive for them on their fiscal deficits. We have to, in some way, draw rational lines in terms of how far we want to go with those barriers, import and export barriers, subsidies that are hugely expensive and distort the trade. With that, let me go to Adam. Where are we going to go with this?

[Adam Posen]

Thank you, David. Let me just say on behalf of the Peterson Institute for International Economics, we're very grateful to get to work with the Bank, not just on today's event where we got to work with President Malpass, managing director Pangestu and others, but that we work on a working basis with numerous departments at the Bank as well. This is because we don't agree on everything, but we share the basic values that I think David implied and some places explicitly said, which is when you're talking about eliminating poverty, when you're talking about development and for that matter when you're talking about sustainable green growth, economic efficiency matters, economic freedom matters, and it's very hard to get those without trade. If I can be conceptual for a moment, as David I think rightly said, we overdid it in supply chain extensions and specialization and putting supply chains in places that for geopolitical reasons were not wise. But I think it's important to understand that wasn't because of some diktat from the Bank or the fund or the neoliberals like me. It was organic. It was because you had multinational companies and investors and businesses in developing countries who were out there saying, "I see an opportunity." The CFO of whatever large global economies country says on a quarterly earnings call, "We're going to reduce cost 10% over the next year," and that comes down four levels to somebody who has a plant who says, "Oh my God, I got to cut cost 13%," and then they realize that there was somebody in Turkey or Thailand or Tobago or I can't think of a T in Latin America at the moment. Anyway.

[David Malpass]

Togo.

[Adam Posen]

Togo, which isn't in Latin America, but it's another T. Anyway. They figure out, "I can really save money by doing this." Then after that happens, you start learn meeting other people in that country. This wasn't some deep decision to spread supply chains thin. It was an organic response to the opportunities that were out there in the world that were very large. And so it's reasonable that at some point the public aspects of this, like resilience in the face of pandemics or worries about, let's call them rogue regimes, start to come in and we're not completely taken into account, but there's a real reason why this happened and it really was a benefit both ways. We have vast amounts of research showing that where countries and more importantly individuals and communities are part of global supply chains, they get higher wage work, they get more investment, they get more integrated, they get benefits. Let me step back a second and I'll trust David to cut me off if I go too long.

Going to Vicky's excellent poem and intro, why does it have such a bad rap? I think to the degree there's a bad rap in good faith for trade and development. It goes back to, as always with intellectuals, fighting the last four. There was this sense of overselling the benefits of trade and overselling what used to be called 30, 40 years ago the Washington Consensus. Of course there was hypocrisy, of course there was recognition of problems, but that has now persisted and grown in ways that are not justified. When we think about what trade does, David put it one way, let me put it a different way. What you need to grow is you need enough competition, enough technology and enough investment of long term to let your country and your companies adapt. If you cut yourself off from new technology, if you cut yourself off from the world, you not only miss opportunities, you engender more corruption, you engender worse choices, you engender less competition. This is why econometrically you can't always come up with a simple relationship, trade equals growth, because what really equals growth is competition, anti-corruption, adoption of technology. Trade is very useful for that, and conversely, it's very difficult to achieve those if you're not open. But it is possible to achieve those without trade, it is possible to achieve those in other ways, but I wouldn't bet on it, particularly for a small economy. Trade is the access to the best practices, the best technology, the best competition. It's about what trade does to your own country and your own economy and not so much what you export.

[David Malpass]

We accept that. You're being a little too nice on one point. You described well that some part of globalization was driven by profit or by actual benefit to people, to workers, to the competitiveness and so on. But now we're at the point, or not even now, always throughout, there is the risk of stakeholders finding ways to use the system in order to beef their own profit, but at the expense of the whole. That gets into import barriers are a classic one where it benefits my company to have the barrier. Now we have the export blockages that are being put on which benefits someone. I mean, you can trace it back to the dollar and cents benefit to bad practices. And so it's not enough, I think, to say there was logic to the expansion of global trade because it was making money, there's also logic to the barriers that are being put in now. We have to have some kind of a system to evaluate the barriers. We are using right language, for example, on subsidies to say if a government is putting in subsidies because of the current crisis, they need to be time bound and they need to be targeted. If there are subsidies around the world that are being put in place that aren't, meaning they benefit all of the people at giant expense and they don't have an end point, they're going to massively distort what the economic development might be. That's one area that we can say we're against untargeted, untimed bound subsidies. The reality is those are being put in place by governments every day now and we try to speak up against them.

Another area of that is the, I mentioned the term self-sufficiency, but there is this big wave to say we ought to make each component within our own country. That's massively costly. Then you mentioned, as we think about the agricultural subsidies that are going on, we have these giant distortions from, let's put it on the table, from quotas, from biofuels, from very expensive practices that end up distorting markets. What's the system going to be to try to get us back on track toward the good side of the profit motive rather than maybe the one that subtracts from the whole?

[Adam Posen]

No, no, you're absolutely right, David, and I commend the Bank for its work tracking and pointing out the subsidies. I think it's very important what you just said. Not only that there are subsidies that it may not be corruption per se legally, but is subverting the public good and public money for the sake of entrenched incumbents or politically favorable. I was trying to go to the general issue of trade, but I think it's also important to recognize what you just said, that right now, whether it's the US or developing economies, the action is much more on subsidies than on tariffs. It is potentially much more distorting. Tariffs, we have a framework, we can track them, they're not good, but there's ways of taking them down. Right now we don't have a system for mutually taking down subsidies the way we once did and still to some degree have on tariffs.

I just want to go one step further. Let's take the green example. There is obviously an insufficiency of public investment throughout the world but particularly in developing world for climate change mitigation, climate change adaptation, new green and new energy technology, and the Bank is confronting that along with others. The subsidy's reaction is probably not the right reaction in a very costly way because subsidies tend to be tied to discriminatory practices. It's about production or ownership of companies in my territory. What we know from the adoption of the internet and digital and we know needs to be true for green energy is what matters is widespread adoption of best practices and it's the households and the companies throughout the economy gaining from that. It's not the value of the production. What matters is that we have economies of scale and competition for technologies and not fragmenting standards, which if we get all the subsidies out there, we're going to be actually subverting the progress of green technology and green energy. We're going to have countries bank, as referred to often, thick borders and that means a lot of things. But essentially we're creating a set of thicker borders for grids, for interoperability of technology, for adopting the newest technology, for spreading at a common standard, for getting it cheap enough that people can buy it on a large scale. So even if your goal is well-intentioned to increase public investment and then private investment in green technology, doing it through subsidies that involve trade distortions is the wrong way to go.

[David Malpass]

That's huge, and your point that there's no system to try to fight this or not as much of a system as there was on tariff barriers, the original part of GAT was a tariff focused and unfortunately it excluded agriculture in most cases. It was a good industrial exchange. We're even losing that, I fear, because industrial policies are really aimed at saying, "Well, we know that there are not supposed to be terrorists, but we need to have protection for this industry because it's a key industry."

[Adam Posen]

Can I pick up on that and try and turn it, as you said, about modalities going forward? A little bit more positive. I see my colleague from Peterson, Jeff Shot, here who'll be on the next panel and he has the scars from the Tokyo round trying to negotiate a subsidies code that didn't work then. Then we know that the US, Japan and EU were talking about a subsidies code in the previous administration and for whatever reason that hasn't gotten picked up. There's room for it to do it, but this is about development, so let's talk about the countries that are not China and the US, that are not the rich countries. I think there are a few places of positive movement we can think about. The first one is it's important to have the multilateral spirit, if not literally multilateral practice. That is you try to involve yourself in deals and standards that are transparent, that are equally applied across all members of deals, that involve as many different countries at different types as possible, and that… Mari reminded me thinking of the WTO as a club of clubs, that your club may not include everybody on a given thing, but that it's consistent [inaudible]. There we are. People can join if they meet the standards. It doesn't have to be literally a multilateral trade round, let alone a development trade round. But it has to be African common free trade area, which the gentleman from Kenya will be speaking about perhaps a bit at the next session. It's about EU doing deals with [inaudible], with Africa, with Latin America, with India that are inclusive. Again, it goes back to this idea of discrimination. That's the core, that you want… Discrimination versus economies of scale, large scale standards. There is nothing that helps the developing world when you go that route. Alternatively, even if China or US are not playing along in a constructive way, there is room for the rest of the world to continue to gain and let them exclude the US and China, for god's sake, and gain and force US and China to come along. And that's true of what we're seeing with CPTPT for example. Second point, I had the privilege to speak the other day at the FCI, which is an important part of the World Bank sort of three year retreat. I was followed on the program later by the distinguished economist Richard Baldwin, who I'm proud to say is now affiliating with Peterson. Anyway, we both talked about, and Richard in more detail than I, the opportunities in services. Again, the panelists in the next session will talk more about this, but in a world where if China and the US and Russia are creating fragmentation of various sorts, the need for business services to adapt and get you across borders and get adoption of technology and get around frankly whatever arbitrary divisions China and the US impose on the rest of the world becomes all the more critical. Third countries as it were, which of course spans a huge range of the world economy, have the opportunity to move in this area. Because services trade has not yet been very well regulated, there's room for plural lateral agreements that can engage the developing world. Finally in this sphere, services trade is the biggest substitute for migration we got. Now, I know the World Bank's WDR this year is going to be focused on migration. We've seen some of that work coming. Our colleague Michael Clemens is doing some work with the World Bank on this. There are huge gains we had from migration. But let us accept, in my view sadly, but let us accept that there's not going to be large, peaceful mass migration in the next few years. The next biggest gains to be had are free year trade in services involving developing country populations and it's doable because China and the US have chosen not to play. In a perverse way, this creates much more room for the rest of the world to play.

[David Malpass]

That's a challenging mix, and so to clarify, we have our WDR, the World Development Report, coming out shortly that is focused on migration and from the standpoint of labor moving from one place to where there's maybe more capital or more jobs, but also the push side of it because of the fragility going on around the world. Very troubling times. We're going to wrap, but you gave us a big hook to go into the positive side of this. I mentioned things that we're trying to get countries not to do, which is the subsidies, for example, that are not targeted or not time-bound. So reducing that for all the reasons that that's important. The export controls stop wherever possible because of the distortive effect. As trade in climate friendly products emerges, try not to have them driven by protectionism. Those are some of that, and you mentioned the importance of avoiding the fragmentation of standards. It's important in world development that people find ways to have their standards be somewhat common so that trade can go across borders. You mentioned plural lateral on services, so I want to add things that we've been working hard on are trade finance. As trade finance broke down during COVID or even prior, IFC has stepped in, the Bank has stepped in and MIGA has stepped in, and so we've had this giant surge in our own trade finance and we are hoping that that can be catalytic and bring private sector trade finance back into the market as circumstances stabilize. But we recognize the importance of trade finance in allowing imports and exports of all kinds.

Then I wanted to mention also trade facilitation, which is a critical part. I think I saw Mona here, Mona Adahd. We have a big push within the Bank. We've got lots of important people. Mari is here, Jurgen is here, and around the room, people working hard every day on making the system work. As we think of trade facilitation, it's the idea of identifying the barriers between countries, often neighbors, but it can be across a continent, and then what are the concrete ways that we can reduce those barriers? That would be customs harmonization for example, which is so important. Across the world we see borders, well, you mentioned the term thick borders, which I think was a World Bank invention in maybe a previous WDR, World Development Report, that talked about the idea that if it takes a long time for a truck to go across a border, you've lost some part of the benefit of trade. That's especially true if it's a perishable item. If you're trying to grow vegetables in one country and get them to another and it takes 12 hours to get through the border, that's not going to work because it diminishes the value of the product. So we are working really throughout the developing world to try to facilitate trade, and that includes regional, you used a fancy term, plurolateral, but it can be regional and it can involve multiple players that decide on rules that make it possible to have a lot more trade.

I guess a closing thought I have, and then maybe you have, and I know we're going to have a really good panel right now, is that the value added from this framework is gigantic. That goes back to the original purpose of trade is to allow and create the value added from people specializing in services, in goods, in agriculture across their framework. And we desperately have to avoid losing that, as countries look to be self-sufficient, that you're going to lose a giant part of your growth potential if you go down that route. Closing?

[Adam Posen]

Yeah. Just to say, and what David said, it is of course something I completely agree with and the Bank has a great agenda here, what I'd like everybody to take away is, if trade facilitation and trade finance have outsized returns and all the evidence is that they do, that says that there are $50 bills on the ground waiting to be picked up if we just enable them to pick them up. The fact that the trade will happen if we just do a few things tells you how big the gains are. The other piece is that as long as we care about human welfare, not about welfare of borders or nations, it's about increasing opportunity for individual workers and individual businesses. And all the talk that the US or others engage in about the damage to trade, that is a rich country problem at best and a self-serving, self-interested obsession at worst. For developing countries, if it's about human opportunity, you want more open borders. Thank you.

[David Malpass]

Great. Someone guide me, what do we do?

[Adam Posen]

Who's in charge?

[Mari Pangestu]

No, I'm not in charge, but…

[David Malpass]

But yes, you are.

[Adam Posen]

You're the Master of Ceremonies.

[Mari Pangestu]

You could say that, I guess.

[Vicky Chemutai]

Well, thank you very much. That was as fiery as it gets, from helping us understand why protectionism really needs to come down, how important trade facilitation is and how subsidies are really just growing. I really liked what you said about subsidies almost taking over tariffs because yes, they're increasing worrying trends we need to think about. Thank you very much for that. I'm going to introduce the next session.

[Adam Posen]

Thank you.

[David Malpass]

Thank you. Thanks. Great.

[Vicky Chemutai]

In this second phase of the trade conference, we shall be having a panel discussion to explore the challenges and opportunities for business and how developing countries can help farms continue to rely on trade as an engine for growth and development, especially in developing countries. To moderate this discussion, we are absolutely honored to have Mari Pangestu, who is our managing director of development policy and partnerships at the World Bank. Mari, [foreign language]. And our esteemed panelists include, with the research perspective, Jeffrey Schott, who is a senior fellow at the Peterson Institute for International Economics, working on international trade policy and economic sanctions. Jeff, an absolute pleasure. And then, with the policymaker perspective, our next panelist is Mr. Alfred K'ombudo Ombudo, who is the principal secretary of trade with the government of Kenya. Alfred, [foreign language]. And critically, which is very important, as we all know, with the private sector perspective, our other panelist is Sunny George Verghese, who is the founder and group CEO of Olam International Limited, a leading food and agro business headquartered in Singapore. Sunny, [foreign language]. I must have butchered it. And then, also, as you can see on the screen with the perspective of trade multilateralism, we have Anabel Gonzalez, who is a deputy director general at the Wall Trade Organization. Anabel, [foreign language]. Mari, over to you.

[Mari Pangestu]

[Foreign language] Thank you, Vicky. I think we've had a good sweetener, not just the chocolates in front of you, but we've had a good sweetener from David and Adam to set the stage for our really very well packed panel discussion. We heard about continued premise for open trade that will deliver growth and development, but realizing the challenges that we face in terms of increased protectionism, but also the new opportunities from services and so on. I think we are going to discuss, in this panel, what are the challenges and opportunities for businesses and developing countries and what are the important policy and institutional responses, whether national, regional or global, so that we can still leverage trade for development. This is really the aim of the panel. I think Vicki already introduced the four excellent panelists and we are hoping to get the government policy perspective, the academic perspective, the WTO perspective, as well as the private sector perspective from those who are online as well as those physically with us here today. We have Alfred and Jeff with us here physically and Anabel, good afternoon, Anabel, in Geneva, and Sunny, in Singapore, I guess, so good evening to you joining us online.

Let me start with the first round of questions to get all of your perspectives on the current set of challenges that was already well outlined by David and Adam, but also the opportunities for reshaping globalization that will lead to still trade delivering on development and how to respond from your different perspectives. Let me start with Sunny. We have heard about the disruptions of global supply chains which was caused by COVID and the war in Ukraine, which has really called for increased resilience, diversifying sources and a shift from just in time to just in case. How is your company adapting to a world of significantly heightened risk, be it climate, geo-economic or pandemic induced? Do you think these risks will have an enduring impact on your business? Please, all panelists, you have three to five minutes each to answer your questions. Over to you, Sunny. You're muted.

[Sunny George Verghese]

Sorry. Thank you, Mari. It's an absolute pleasure and privilege to be here this evening. It is past midnight in Singapore, the session has kept me awake, given the importance of the issues that we are all confronted with and dealing with. There is absolutely no doubt in my mind, and based on our experience, that all of the events that you mentioned or all of the key trends that you mentioned have a direct impact on how we serve our customers. By way of a very quick introduction, we are a leading global food and agro business. We grow, we ordinate, we process, we manage the logistics and we deliver to over 23,000 customers worldwide, about 47 agricultural raw materials and food ingredients, everything from cocoa and coffee to palm and rubber, and cotton, and various kinds of raw materials and ingredients. Obviously, as population is growing, per capita incomes are growing, as we are having a more younger demographic in terms of a younger population, the urbanization trends, the change in dietary habits, the demand for food and feed people is also growing. How do we meet the growing demands of a larger population without destroying the planet and being climate positive, nature positive and livelihood positive as we seek to meet these growing demands of food and feed demanded by a growing population?

The first is, we already had the supply chain disruptions which was a result of COVID pandemic with the availability, and more importantly, the access to the food from where it is produced to where it is required being disrupted as a result of the COVID pandemic. And of course, the Russia-Ukraine war has added fuel to the fire and exacerbated the situation in terms of the war induced supply chain disruption. Russia and Ukraine put together is one of the six big bread baskets in the world. The grains and oil seeds that Russia and Ukraine produces and feeds the rest of the world is about 105 million tons out of a global trade of 400 million tons, which is about 26% of global trade in grains and oil seeds just comes from these two countries, and that has impacted the global trade flow in this.

In the case of Olam, in 2021, we were supplying about 41 million tons. In 2022, our volumes have come down to 38 million tons. As a result of these supply chain disruptions, we had a lower contribution of supply for wheat, and corn, and barley and other seeds that were produced in Russia and Ukraine. We were able to make that up by our presence in other trade corridors and trade flows, but overall, our volumes declined by about 3 million tons, although the source of that decline in volumes were attributed about 5 million tons to the Russia and Ukraine disruptions, but other trade flows grow for us, so that is a direct impact.

In terms of the climate change and how it's impacting our trade flows, it is also very clear. In Olam Agri, one of the three operating entities within Olam, in 2022, we had a greenhouse gas emission footprint of 61 million tons. Out of the 61 million tons, only 0.8% was scope one and two, and 99.2% was scope three. Since we have committed to a net zero commitment by 2050, we have to reduce our greenhouse gas emissions by 50% by 2030, which means, as our greenhouse gas emissions will grow from the 61 million tons to 73 million tons by 2030, we have to bring it down to 31.5 million tons, which means we have to reduce 36 million tons in the next eight years, which is 5 million tons a year. If you value it at $40 a ton, which is what our major shareholder, the MassCEC, has assigned as a carbon cost for us, that cost of carbon is 200 million dollars, which is roughly about more than half after tax profits.

There isn't a bigger priority for me or my CFO but to first try and mitigate and reduce and abate our greenhouse gas emissions if we have to be true to our purpose of transforming food feed and fiber system so that we can have a more sustainable and food secure future for all. Last year, in '22, 70 countries have imposed various export bans and other tariff and non-tariff barriers to maintain food security in the countries. 179 countries have had food price inflation significantly higher than the hedge line inflation of 9%, 10%, 11%. And food price inflation last year was 178%. Many countries have suffered very high levels of food price inflation and food insecurity. The way we try to manage this disruption and navigate through this is to follow a rule that we will be present in at least 90% of the producing countries for every raw material that we are trying to supply to our customers. Either we are growing them in these producing countries or we have direct farm gate ordination and sourcing from about 5.2 million farmers around the 67 countries that we are present in. As a result, we are able to compensate if there is some supply disruption from one producing country or region by being able to source more of similar quality and grade raw materials from other producing countries. That's the way we are trying to navigate through this.

[Mari Pangestu]

Thank you, Sunny. So diversification and the longer term issues on climate, that you're addressing. Now, let me turn to you, Alfred. As a policy maker from a developing country, how important is trade for development and poverty in your country? How are all these disruptions of supply chain affecting trade in your country? What are some of the key challenges you face in terms of designing your national policy actions to make sure that trade continues to be the engine for economic development?

[Alfred K'Ombudo Ombudo]

Thank you so much and thank you for having me here this morning for this panel on global trade and development. I will straight go to the point that global supply chains, over the last few years, have obviously had an impact on countries' ability to trade everywhere: rich, developed, poor, growing nations. But it has also hit the developing nations quite hard, particularly in some sectors whereby a lot of the raw material for example, is accumulated from elsewhere and some of the processes, then, are finished within our countries for onward destinations into certain markets. The textile industry is an example and the upper industry is an example. Those disruptions have been there, but aside from COVID, we should also appreciate the fact that African and developing countries have been participating in global trade at less optimum levels, even before the pandemic. Therefore, my point there is that there are a number of structural and developmental issues that probably need to be taken a look at in the context of disruption of global supply chains, but also in the context of the more foundational structural issues that African countries, for example, will need to address in order to basically benefit more from global trade. The disruption of supply chains has been critical in our ability to be able to finish accumulation and to supply markets, but at the same time, we are beginning to see a situation whereby there are conversations that are going on amongst a number of developed countries and other countries that are beginning to become more sensitive around where the supply chains are coming from. Even if, for example, a country like ours has preferential access to certain markets, we are beginning to see conversations around where countries are more interested to find out where are you getting your raw materials from and are you getting those raw materials from places which are compatible to our foreign and external trade policies, and so on and so forth. This raises further interesting conversation that must be had. It is potentially an opportunity for countries like Kenya to basically take a look at this and try and make a pitch for investment, investment whereby we are then able to have more of the cost buildup structure for any goods that we are trying to export being done from within Kenya, and if not from within Kenya, from within the region. That's one of the other things that I would like to raise.

Another point that comes up from a policymaker's perspective is some of the shocks that we are seeing over the last few years that is affecting our company's ability to export and get settlement in external markets. I'll give you a tangible example. Tea is our largest export. We export about 1.2 billion dollars of tea from an economy of about $100 billion. It's significant. Our exporters are currently not able to easily get settlement because there are no dollars available. And we have containers of tea stuck in a number of ports for which they're still waiting for settlement months on end. One of, then, the key thing that has to be addressed in the context of COVID, our post COVID world, some of the global crises in terms of the wars and so on and so forth is how do we ensure sustained settlement for traders that are basically coming from developed countries and basically have little muscle around which to basically have long working capital. If I can reflect further on this particular issue, I would basically say that we have lots of opportunities in this new emerging order. Environmental sustainability is emerging as a serious issue in sourcing, in manufacturing and so on and so forth, and this presents significant opportunities for a country like Kenya. I'll tell you why. Kenya, right now, has an energy mix that is comprised of at least 97% clean energy, and the other 3%, we are basically moving to get rid of it from our energy mix. What does this mean? It basically means that for anybody who wants to do manufacturing in Kenya and has products that require a high contribution of energy already gets a leg up when you are manufacturing in Kenya. We are trying to tell this story and we are also trying to get the investments that are necessary for us to have, located in Kenya, the kind of investments for people who want a green badge for their exports. This becomes a very significant opportunity that I believe we need to work on.

To conclude, when we reflect on global value supply chains and when we reflect on our ability to participate in trade, we also realize, then, that we need to work significantly with development partners like the World Bank Group and so on and so forth, and we need to be able to open new markets and to negotiate in new markets so that we are able to have more markets for our products out there. We are, for example, working with the global trade team of the World Bank Group to basically help our negotiators understand and be more effective in understanding the global trends, and that has also helped us with our current conversations that we are having with a number of our trading arrangements. We are also, for example, having conversations with the finance competitiveness and innovation team that basically is putting up a significant jobs and economic transformation program that hopefully will also look at the key issues that need to be resolved on the export side. Allow me to conclude by saying that to participate in global markets, pre-COVID or post-COVID, to me, makes a little difference because there are significant foundational structural issues that are still not yet solved. What do we need to do? We need to open new markets, we need to invest in investment led trade whereby our proposition is to attract investment as a basis for trading in external markets. We need to leverage green energy that we have in abundant supply and create a magnet for that. We need to ensure that our export markets become pro-poor, pro-farmer and pro-young people so that they're able to participate in external trade. Thank you very much.

[Mari Pangestu]

Thank you. Thank you so much, Alfred, for outlining the challenges as well as the opportunities. Over to you, Anabel. Let's start by saying that the multilateral trading system has played a very important role in ensuring developing economies are integrated into the global economy and framing their national policies. Now, given the uncertainties and the lack of leadership currently in the system and a big discussion about WTO reforms, can you share how you are seeing the WTO reforms can help this continued agenda of trade and development and any other issues like dispute settlement that you would like to raise? Over to you, Anabel.

[Anabel Gonzalez]

Thank you. Thank you very much, Mari. I'm delighted to be here with our fellow panelists in this event organized by the Bank and the Peterson Institute for International Economics. Though WTO reform may sound technical and even geeky, it turns to be anything but. At a fundamental level, WTO reform is really about the global economy of the future. Without WTO reform, a situation where power replaces rules in global trade relations becomes more likely. And that would hurt everyone and benefit no one. The cost of the resulting economic fragmentation would be massive, as much as 5% of long-term world GDP if the world economy was split in two self-contained blocks according to WTO estimates. To put it into context, that would be worse than the damage caused by the 2008-2009 global financial crisis. Small and mid-site developing countries would be hit the worst as they would see their prospects for trade led growth and development severely curtailed. WTO reform is first and foremost about safeguarding trade's roles as a tool to create jobs, reduce poverty and increase economic opportunity, especially in the poorest developing countries. Now, beyond that, WTO reform is also about promoting more resilience, more sustainable and inclusive trade.

First, let me say a word on resilience. Turning inward and retreating from trade is hardly the answer to make economies more resilient to shocks. I think David and Adam were referring to this before. On the contrary, what we need, are deeper, more diversified and deconcentrated markets alongside with guardrails that protect against excessive fragmentation. A reformed WTO can play a key role in several areas, improving transparency and monitoring to map concentrated trade relationships, promoting policy dialogue and coordinated solutions and fostering trade facilitation to bring alternative supply sources into the global economy. Again, David made a strong pitch for trade facilitation and I would like, probably, to say a bit more on that later on.

Second, WTP reform is about sustainability. We need a reformed WTO to be able to leverage the global market for effective and ambitious climate action. There are many ways that this can be done, for example, by reducing the trade barriers that prevent green technologies from moving to where they are needed. The WTO must also play a bigger role in ensuring a just and fair climate transition, not least by ensuring that climate measures such as carbon border adjustments do not put experts of green goods and services from developing countries at a competitive disadvantage.

And third, the WTO reform is about inclusiveness. We need a reformed WTO to allow new actors to tap into new sources of growth, especially for countries and businesses that have not been able to benefit from trade integration and as a result, remains in the margins of the global economy. Though the merchandise trade growth has slowed, Adam alluded to the great opportunities that services that digital and delivered services in particular can bring. And this is a market and expert opportunity that, in 2021, amounted to 3.7 trillion dollars. This is very, very significant. This is also the case of green trade.

Now, turning briefly to some of the specifics of the WTO reform, let me say a word on negotiations and dispute settlement. On the issue of negotiating new rules, our successful 12 ministerial conference last June demonstrated that it still can be done, that there is still life in the multilateral approach. But we need to complement this with a basket of alternative rule making approaches so the willing members can move ahead on relevant issues without being held back by those that are not ready to engage. And such alternative approaches are beginning to deliver. We have delivered lateral outcomes on services domestic regulations through slashed red tape on services trade. Conclusion is within reach on investment facilitation and the talks on e-commerce are proceeding.

On disputes, the lack of a fully functional dispute settlement mechanism not only clouds business perceptions of the utility of the WTO, but it also weighs on negotiations and deprives developing countries, particularly small and mid-sized ones, from a unique instrument to ensure that WTO rules are applied consistently across WTO members no matter their size. That is one reason why having a fully functional dispute settlement mechanism is a top priority. Now, at the same time, I also have to say that the dispute settlement system is not closing. The system is still being used by members. Members are also using alternative modes of dispute resolution and in going forward, thinking in terms of a basket of tools for resolving disputes is something that could help us return to full functionality by 2024, the deadline that was established by our ministerial congress.

Let me conclude by saying that WTO reform is likely to be a slow burn rather than a Big Bang. In fact, bits and pieces of WTO reform are already happening, but we need to accelerate the pace to ensure that WTO is fit for purpose in a more complex and rapidly changing trade policy landscape. And here, I have to say, Mari, that the World Bank is a very constructive partner in our efforts to support WTO members to reform the WTO. So great thanks to you, to David, to Mona, to the whole team for your strong support and commitment for a revitalized WTO.

[Mari Pangestu]

Thanks, Anabel. Okay, WTO reforms are not geeky and we are looking at a slow burn and not a Big Bang, but let's all work to get the a bigger bang, let's say. Jeff, I know you've been thinking about this topic for some time. I just want to get your take, we see the trend of fragmentation, the discussions on friend shoring, near shoring. Give me your take on how this impacts developing countries and what should be done.

[Jeffrey Schott]

Well, thank you, Mari. Of course, David and Adam's conversation at the beginning really laid out the key issues that are involved with your question. But if I were to point to one word that is the focus of all this friend shoring, near shoring, it's the need for investment. Alfred pointed this out.

[Mari Pangestu]

Yeah.

[Jeffrey Schott]

This is what we're really talking about. Some people are talking about, how do you create the incentives to lure the investment into your country by hook or crook, by carrots or sticks, by trade preferences, by subsidies, by trade discrimination, forcing that flow of funds by economic sanctions, for penalizing countries or companies if you don't do it. I think Adam spelled out very clearly some of the costs of this discrimination in lost opportunities, in wasted resources. But it's clearly what has been prompting the discussion today because the friend shoring has mostly been focused about China, and what do companies and countries do facing the China shock, the shock of the trade war, rising costs in China, in very limited sectors, the economic export controls that prohibit the flow of investment to different markets.

But there is much more that needs to be done. I think the incentives, the subsidies, the discrimination that the United States has put forward are actually very small. You may be talking about 50 billion dollars over five years, but it's small in terms of the movement of funds and production, the reordering of distribution networks that are at issue. And here, I think one has to look at why friend shoring has been in existence and important for the international economy for a long time, but it's just not been called that. Trade agreements create preferences that open opportunities for trade and investment. They're meant to encourage more opportunities. Economic reform, regulatory reforms, the investment in infrastructure and ports and logistical networks, that all creates the environment for growth that Alfred was talking about. These are things that trade agreements, over time, have been promoting, opening opportunities for increased trade in investment or friend shoring, but you never hear anyone saying a trade agreement is a tool of friend shoring. Actually, it is at its essence, as long as it emphasizes the openness of opportunity and not the cost of discrimination. I think this is what governments need to think about when they are pursuing these policies. They have to ensure that they are creating the climate to take advantage of these opportunities, so encouraging the types of economic reforms that create the opportunities throughout the society. And I think Alfred and his own country create the opportunities for young people, men and women, to move forward in new technologies where there is an emerging growth. That's critical to support that with the infrastructure, whether it's physical or education and to work with trading partners and friends to deepen regional integration arrangements, to create new opportunities for secure and efficient sourcing of raw materials and components and access to the markets. This, I think, needs to be supplemented by the broader alignment of regulatory policies. This is something, actually, the United States is trying to do in the Indo-Pacific economic framework and in the Americas framework and through its bilateral initiatives and regional initiatives in Africa and elsewhere, to align regulatory policies that often, as a practical matter, determine whether can one can enter and compete in foreign markets. I think that is critical. I think the guidance of the work at the Bank in promoting good regulatory practices and around the world is helpful and something that I think we can build on. Thank you.

[Mari Pangestu]

Thank you, Jeff. I've been not a good moderator. We only have eight minutes or so for the second set of questions, so if I can get your indulgence to be very brief in your answers. Let me turn to Sunny. I think you already mentioned how you, as a company, as a business, are responding to these different challenges. If you can just also maybe elaborate more on this diversification strategy as well as how do you respond, you have a net zero commitment as a company and you mentioned a few things, but how else do you think you will respond in the near future? You're muted. Sorry.

[Sunny George Verghese]

Sorry. I'm sorry about that. I think the first is to harness the power of technology in making a fundamental difference to becoming climate positive or nature positive or livelihood positive in the way we do our business. On the first part, in terms of being climate positive, we have launched an AI mission learning based application for being able to measure scope one, two and three, particularly scope three. As you know, today, only about 15% of the world's companies measure scope three and 90% of those who measure scope three measure it inaccurately. How do you develop a more reliable measurement engine that can measure scope three so that you can meet your commitment based on the SBTI 1.5 degree pathway that if your total greenhouse gas emissions, more than 50% of it is scope three, then you need to reduce it by two thirds by 2030 and reduce it by more than 90% by 2050. This is a product called Telescope. We have launched it now. It started with people in the food and ag sector using it. Now, we got other sectors who are on this net zero journey also adopting it. That's one example.

We want to be nature and biodiversity positive, which means we want to ensure deforestation free supply chains. And in order to be able to do that, we have got the Forest Lost Risk Intake, which is, again, a digital tool that helps us anticipate which are the next potential landscapes that are vulnerable for deforestation, and then understanding the root causes of why that would be the case and trying to preempt deforestations in those vulnerable landscapes. That is an example for deforestation free supply chains.

We want to make sure that our supply chains, as much as possible, we can make them child labor free, for example. And for that, you need to have very granular traceability systems right up to the farmer level to be able to provide that granular traceability. I think harnessing the part of technology, we have launched another digital intervention called Jiva, which is a smallholder services platform. In the developing economies, more than 70% of our food is produced by smallholder farmers. Globally, 40% of the world's food is produced by smallholder farmers. How do you help them improve productivity and livelihoods and get to a living income through more targeted nudges on what is the next best action they can take on the farm to close the yield gap? China, in 1960, had paddy yields of 1.8 tons per hectare. Today, they're at 7.5 Tons per hectare. And that is possible for other countries to do as well by adopting technology.

[Mari Pangestu]

Yes. Thank you. Thank you, Sunny, for those really valuable insights and what you're doing. To Alfred, just quickly, what do you think developing countries need to do to participate and be more proactive in the WTO reforms? And how do you see the role of the African continental free trade area as well as the bilateral agreements that I know you are negotiating with the US play?

[Alfred K'Ombudo Ombudo]

Yeah, thank you very, very much for that. Kenya is extremely committed to seeing more trade on the continent. We see very strong markets in places like the Congo, whereby we have endless demand for diary products. We see endless demand for products in Sudan, where, for example, we have lots of opportunities for trade in manufactured products. We see lots of new markets in Ghana, Nigeria and so on and so forth, whereby we are seeing markets for tea and so forth. The African Continental free trade area is going to remain a key instrument for us to actualize that. For that to work, we need to ensure that we thin the borders a bit more. It's still a bit more difficult to trade across borders within the continent, and notwithstanding lower tariffs, then, it becomes an issue if, then, the borders remain something that's difficult to use for trade. That remains one of the issues that we really want to make sure that we work on.

On the WTO, I see that it is extremely important for African countries to play a bigger role in the standard setting processes because if we are to trade and if we are to engage globally, then, the standards around goods and services need to also reflect our contribution in a more meaningful way. This therefore becomes a key developmental and trade issue for which you can expect us to be talking about more and more as time goes by.

On dispute settlement, we look forward to a more engaging stance from the WTO whereby developing countries are able to actually engage in the dispute settlement process in fairer ways. Finally, I think developing countries, and African countries in particular, we need to always keep looking at our trade defense instruments and see how we can ensure that trade within the multilateral system remains fair and that we are able, then, to be able to detect instances whereby there's unfair play and mitigate that. Thank you.

[Mari Pangestu]

Thank you, thank you, Alfred. I think the standards, and especially in the emerging climate change standards, whether it's CBAM and so on, this is a very key, I think, development and trade issue. Anabel, if I can just turn to you, there are discussions about market opening in agriculture and services, and we heard Adam earlier mention the potential for services. We also heard, David emphasized the role of trade facilitation, and I would add capacity building within that. What is the WTO doing with regard to that? And I see it as ways to get membership interest in the WTO.

[Anabel Gonzalez]

There's no magic formula for restarting market access talks, but there are some things I believe that the WTO and its partners, including the World Bank, can do to improve the prospects for such talks. Let me mention three concrete actions. First, to improve transparency of policies and regulatory frameworks. Jeff was referring to this before. Second, to ramp up evidence-based research and policy dialogue on the effect of opening markets. And third, to expand technical assistance and capacity building, as you rightly mentioned, Mari.

Now, when it comes to services, I think this effort must focus on the critical role of services in today's global value chains. For developing countries, this means that specializing in services can have big payoffs in terms of scale, innovation and spillover effects. Take, for example, the ICT sector in India, which is sustained largely by experts. It supports 16 million workers and has generated more jobs than any other sector over the past two decades. Let's also not forget the importance of having access to high quality and competitively priced services also for manufacturing and agricultural competitiveness. Now, on agriculture, our efforts must focus on the role of agricultural trade in achieving many goals, from ending hunger to supporting the transition to net zero from helping countries buffer the impact of extreme weather events to grasping the opportunities that digitalization of farming offers to developing countries.

Now, let me just say a word on what countries can do at home to reap the gains of trade in digital trade and green products. There are many, many things, but let me just mention two elements. First, countries can and must work to improve their trade policy and regulatory environment because this is critical to attracting the necessary investments to develop digital infrastructure and closing the digital divide and also to improve digital skills and entrepreneurship. One way to do this is to use WTO initiatives to anchor a process of domestic policy reform. For example, our agreement on services domestic regulation, adopted by a large group of WTO members, contains disciplines to cut red tape and foster transparency, which will save service providers 150 billion dollars each year. We have an agreement on investment facilitation that is being negotiated and hopefully finalized this year to help improve the investment climate. Again, our work on developing global rules on digital trade can increase predictability, reduce fragmentation and lower cost in the digital economy. We have, I think, a very successful example in the implementation of the WTO trade facilitation agreement as a mechanism for anchoring domestic reforms to simplify and streamline the border processes and reduce credit costs, again, with strong support from partners like the World Bank.

Finally, let me just say that green economy developing some standard certification and quality infrastructure can help developing countries leverage their green comparative advantage.

[Mari Pangestu]

Thank you. Thank you, Anabel. Finally, over to you Jeff. I just want to ask you a question. We see the retreat of leadership in the major economies in the multilateral trading system. How do you explain this retreat? And how do you also deal with this anti-globalization movement? The seeds of this anti-globalization movement is the perception, real or not, that the trade has not delivered equally to everybody. How should we respond to that? Not to blame the trade policy, but what is the comprehensive approach that will be needed?

[Jeffrey Schott]

That's easy to do in one minute, but I think you hit the highlight, that there are multiple and interrelated causes for the impasse in the multilateral trading system that we have seen for a long time. This is not a new event. We've had a failure of WTO negotiations from the start to update the rule book, therefore that WTO is not fit for purpose for 21st century trade, particularly in the area of services. We've seen an abuse of the consensus rule by both developed and developing countries. Effectively, veto by the big players that are not invested in maintaining and strengthening the system. That wasn't true during the GATT era, but then, it was mostly the United States and Europe investing in the system and providing countries a free pass. Now that everyone is invested in the system, we're seeing the major economies pulling back. In part, they're doing it by abuse of national security exemptions to justify industrial policy by disabling multilateral enforcement, which enables unilateral enforcement and therefore goes against the system. What has happened in the history of the post-war trading system is that to get multilateral deals, you've had to have all of the big players agree, come together, and then they can provide the core for a broader agreement. Very hard to envision how that's going to happen today with the United States, China, Russia in the system and the European Union, though being more proactive on WTO reform, still raising questions about the carbon border adjustment mechanism.

There's an opening for developing countries and middle powers to take up their leadership mantle and begin to say, "We are the ones that need the disciplines, the reforms, the common rulemaking the most to protect and enable our economies. Take the leadership, don't rely on the United States and China to do so. Do what you're doing, expand it beyond Africa, beyond Southeast Asia." And we see, as Adam said earlier, that this is what the CPTPP countries effectively have done in the midst of a US-China trade war. They have continued an open regionalism, not just in the Asia Pacific region, but for any country that wants to pursue an upgrading of their economic policies.

[Mari Pangestu]

Thank you. Thank you, Jeff. I think I'm really running out of time, so I'm going to borrow a bit of time from the concluding session to take some questions. I'm going to take one question online, and then I will open it up for one or two questions from the audience here. I just want to also mention we have a large audience also following this online. One question from online I would like to ask each one of you. I'll direct the question, or the questioner can also direct which panelists they want to answer. And then, when you respond, all of you will respond at the end as well as give your final remarks. Let me give you one question from the floor: "After COVID-19, what was learned about the role of international trade during the global health crisis?" If I can ask Sunny to give the private sector perspective and then Anabel to highlight the role of the WTO during this crisis. Just to highlight, there's a World Bank, WTO Trade and Health report out there on the table, so please take a copy or look for it online. Now, let me open the floor for anybody here. Okay, the lady over there, and one more. One more?

[Woman 1]

[Inaudible].

[Mari Pangestu:]

Okay.

[Woman 1]

Thank you so much for the presentation. Actually, I want to follow up on what Alfred has said, that countries in Africa and developing countries are trying to have their initiatives on green free trade zone, for example, in Ethiopia also now what Kenya is thinking about, but the issue, according to many reports, including Mackenzie, is that the problem with the green agenda and the application of that is not at the suppliers level. It's about what happens throughout the supply chain from the time products get out of the country. The issue is how to have all the players, when the products get out of the country, all the players, including shipping companies, multilateral countries on the exporting countries, etcetera, to have them in sync to ensure that all the benefits of this green agenda is realized. Also, that will benefit in return the importing countries. Thank you.

[Mari Pangestu]

Thank you. Please keep the questions short and tell us who you want to, which panelists-

[Woman 2]

Thank you.

[Mari Pangestu]

Who you want to… Which panelists or-

[Woman 2:]

Thank you.

[Mari Pangestu]

Which panelists you want to address?

[Woman 2]

Thank you very much. So I think the question is general for all panelists of this panel and even eventually the previous. We heard from many from of you that basically to save trade we need to look beyond trade to competition, to product regulations, to labor regulations. But we are still talking about a global agenda or a multilateral or a international agenda for trade while this issues, we are thinking at how to deal with them on a national scale. But this is the recipe that we followed in the last 30, 40 years. So what is it that needs to change to make it happen this time? Thanks.

[Mari Pangestu]

Okay. I think I will perhaps reverse the order and start with… So I think you had one general question to all of you. One question to Alfred and then the COVID-19 question to Anabel and Sunny. There was also another question actually on climate change and trade and maybe Jeff, from online, maybe you can also address that and then also give some wrap up comments. But all in, we are running out of time, so all in one to two minutes at most. So Jeff.

[Jeffrey Schott]

Well I'll focus on the last question because you're saying are we doing the same thing all over again? In the past it was really top down and if you look at the trading system, the post-war trading system, it was designed on US law and practice. Many people in Washington forget that, but to meet the challenges of the 21st century, it has to be bottom up. It has to be countries recognizing that for their own welfare they need to work with their neighbors and develop a set of guidelines that will ensure the ability to produce trade, finance and grow, all for the men and women young and old in their societies. And that's not going to come from the United States or China telling you what to do. It has to be an awareness among the developing countries in the middle powers on how to move the system forward.

[Mari Pangestu]

Thank you. So if I reverse the order that means Anabel, right? Did I get that right or did I get that wrong?

[Anabel Gonzalez]

I'll go ahead anyway. Let me just briefly say that contrary to popular perception and despite initial hiccups, trade played a critical role in making sure that vaccines, that therapeutics and diagnostics reached all over the world. And the evidence is very clear. While in 2020 trade decreased by 7%, trade in critical medical goods increased by 16%. So this is to show that in combating a health crisis such as the pandemic, trade played a very important role which goes more broadly to the role of trade in addressing global challenges, the global challenges that we confront today, be it in terms of health, food security, climate change or others. So this is again one more reason to invest in WTO reform to make sure that it's fit for purpose to support these global challenges that the world faces.

[Mari Pangestu]

Thank you. Thank you, Anabel. Alfred?

[Alfred K'Ombudo Ombudo]

So thank you very much for the question on greening exports and the economic zones around that. I do agree with you that we need to look further than just what we are able to do in Kenya in as far as greening goods and services and look through the entire value chain, how we are also sourcing products, whether those products are greening themselves and onwards onto the market. What we are saying is that we have a very good start and we have a start whereby we have clean energy. We are trying to commit to green principles in production and then that already gives us a very good start for that. And I'm just hoping that in conversations with development partners for example, hopefully even with their finance, competitiveness and innovation teams for example, is that then we are able to think through what does it take in reality to have a green export strategy whereby the supply chains are also responsive enough for the product to arrive on the shelf premiumized and green. Thank you.

[Mari Pangestu]

Thank you, Alfred. Last but not least, Sunny.

[Sunny George Verghese]

I think we've all seen the importance of keeping trade flows and the ability to access food, basic life's essentials, from whichever country has the most comparative advantage to produce their cheaper, better, and take it to destinations where it is most required and where there's a deficit of the production of these raw materials. And it is therefore unfortunate that we have the precisely the wrong policy response when we have disruptions like the one that we have seen from COVID or the one that we have seen from Russia, Ukraine War when more and more countries exacerbate that supply, demand disequilibrium by export bans and import tariffs and export tariffs which only worsens the situation. So coming back to the question that was raised from the floor about how can we remove some of the vulnerabilities of trade that is not regulated or controlled in a way that the vulnerable sections of society who might be disadvantaged by more free trade can be re-skilled or can be provided for or taken care of is an important lesson for us to have trained drive good quality GD people.

[Mari Pangestu]

Thank you. Thank you, Sunny. And thank you to all of you panelists. I'm sure all of you will agree that we've had really great discussion with excellent panelists, more questions to be answered but therefore more work for all of us to do. But I will ask you to give a round of applause to the panelists. Now we'll move to the closing session. I think you can stay there or up to you, stay there or sit down. But I'm going to reverse the order. I'm going to invite David first because David has to leave and then I will finish with the second closing remarks. David, if you can come to the podium and I beg your indulgence to go a little bit over 12. David.

[David Malpass]

I'm happy to and we are flexible here at the World Bank. I want to first thank very warmly Anabel and Sunny, and Alfred, and Jeffrey. It's been a great conversation. Also, I want to thank Adam Posen. It's been a great knowledge exchange and so it's fitting that I'm here closing with Mari Pangestu. She's been, as she approaches the end of her term, Mari has been vital in the knowledge exchange of the Bank, what events just like this, but also all of the makeup of that for the Bank. If I think back on the arrival of COVID, the knowledge that was needed in the mobilization of the vaccines effort, I see Mum Demerti is here, who was vital in that effort. As I think back on the challenges posed by food and fertilizer, I see Jurgen Vogle here who was vital in that effort and still is. And I thought it was very important that we heard Sunny's closing points about the difficulty of getting feed and fertilizer and food stuffs around to various parts of the world. So these are all core things that Mari's been so instrumental in over the years on trade and investment. I was very happy that Jeff mentioned the importance of investment. As we think about the private sector role in facilitating trade, it's going to be vital and I think we heard Alfred talk about the importance of sustained settlement. So as we're in this field of trade liberalization and facilitation, the details matter of each way that the importers and exporters, whether services, goods, agricultural products actually exchange money and how that can be done in a robust way. One of the concerns I have and I'll just mention is the, or I'll put on the table, a big problem facing the world, that's the absorption of capital is so intense by the advanced economies. As you think about what's going on with pricing for the poorer countries, they're not buying the fertilizer they need to create the crop yields that are out there. And under the surface we're beginning to see rice prices go up. That's an early warning sign and we're beginning to see nutritional levels decline for people in the poorer countries. So whether you call it pricing effect or a shortages effect, it's having this impact that is at the core of the world's success over the next few years. So I'm troubled by that. I'm really very happy to have this conversation today and I want to congratulate Mari on all she's achieved here at the World Bank and thank her for that including today's fabulous panel. Thanks.

[Mari Pangestu]

Thank you, David.

[David Malpass]

Thank you.

[Mari Pangestu]

Thank you so much.

[David Malpass]

Thank you.

[Mari Pangestu]

Thank you. Thank you so much, David, for those kind messages. I will now try to give a few key takeaways from our excellent session today. And first of all, thank David for participating. That shows you the high level of priority we as an institution put on trade and development. Thank Adam and Jeff for the partnership with Peterson on this event. And Anabel we have continued partnership with you with the WTO and of course thank you to Sunny for staying up, must be beyond midnight for you now, to provide the private sector perspective and also to Alfred for joining us today as the policymaker developing country perspective. I think, let me try to be brief. We heard today the challenges we are facing. We have slowed down in the world economy where subdue trade and investment is affecting growth and development for developing countries in the foreseeable future. We see threats of disruption in economic and social systems due to climate and technological change. And we also see a rise in protectionism by many countries but led by the largest global players. And this is creating costly inefficiencies. I think we heard many remarks on that. Risks of fracturing the open and rules-based trading system and risks especially to take away opportunities for developing countries to follow a trade led growth strategy. What we heard is also that whilst there are challenges and uncertainties, driving trade for development still matters. And I'm a great believer in that myself. And we heard that there are new opportunities in trade that have emerged such as green products and services, especially digital based services. If you look at the recovery of trade post-COVID, actually business services recovered very quickly and countries that have been able to deliver on business services have been benefiting from that. And the best response to increasing resilience to shocks and security considerations of dependence is still diversification. I think we heard Sunny mentioning that in the case of his remarks. And we saw how countries which are part of the global value chain were more resilient and recovered faster during the crisis. But we also know realistically the solutions that we have long relied on may not be the most obvious pathways moving forward to reap these opportunities given all the geopolitical tensions. And we can expect the continued use of various instruments in the name of resilient security and national development. So really not to be blue as the MC mentioned in the beginning. I'm wearing red. I see some of you're wearing red because it's Valentine's Day. I think we need to look at the way forward. We had a good discussion on the way forward. Let me reflect on three key messages about the way forward in terms of what we need to do to respond in terms of policies, knowledge exchange, evidence-based policymaking and how the Bank can inform on this.

First key message, taking the country level perspective. I think trade matters is really what we are wanting to emphasize. And our assessment actually shows that trade tensions that lead to fragmentation with higher barriers of imports and increased subsidies in advanced countries and China will hurt everyone with the world economy losing as much as 1.4 trillion, but hurts developing countries more with 52 million more people entering into extreme poverty. This is the type I think of evidence-based and information, and I know that Peterson also has this kind of information to show the costs and that it hurts developing countries the most. Not to mention small economies that depend on trade or landlocked countries that need connectivity. So the main message is that developed country actions that may be justified from national security, climate, and income inequality need to take into account their impact on developing countries. Similarly, developing countries that are also wanting to conduct industrial policies also need to consider the impact on other developing countries or, as Jeff mentioned in our discussion just then before the event, how do we avoid beggar-thy-neighbor policies that benefit you but hurt at the expense of others. So how do we design policies that can achieve the goals of, whether it's resilience, security or addressing geopolitical concerns, but in the least or even industrial policy objectives in the least trade disruptive and costly ways? And this is where the Bank in its knowledge and evidence work will continue its work on this and provide the voice for developing countries in the current debate on trade and development. And furthermore, I think many mentioned, especially Alfred was mentioning that really the importance of investment in trade including the new opportunities in services are there. And this is where we need to accelerate our evidence-based analysis and continue to support developing countries to design the right kind of policies and institutions. That's still the, I guess, the bread and butter or the usual policies about how to attract investment. I think many of you mentioned that and how to attract investment that will lead you to a trade led growth and development, which includes trade facilitation, efficient infrastructure and logistics, conducive investment climate and capacity building that will improve the functioning of domestic markets and institutions. And I think there was a mention of trade finance. How can we help the T-traders really access trade finance and how do we reduce the thick borders? And I think attention should be put, this pushback on globalization. I was a trade minister and the amount of blame that trade gets on all the ills and all the downside of the economy is really something that's just easily targeted. So attention needs to be put on complimentary policies that ensure that we can have the benefits of trade that are more equally distributed and this includes inclusiveness, human capital, paying attention to human capital and gender and so on.

Second, new trends in technology, climate, supply chain resilience and industrial policy are creating challenges and opportunities. So it's both challenges and opportunities for developing countries. But we need to monitor all this to ensure transparency and fairness. And I think Alfred mentioned the point about standards, and it's key that measures in the name of climate for instance are transparent, that are not unilaterally determined, that do not distort trade in the guise of protection. And this is where the multilateral discussion on trade and environment and how impacts development needs to happen. It's about transparency of subsidies, making them targeted and time bound, supporting data collection on an analysis on trading services and also understanding better the types of smart versus costly industrial policy and understanding better trade costs. For businesses, understanding the trade costs is really key.

And then finally, not to be gloomy about the multilateral trading system. It's not geeky as Anabel said. Maybe it's a slow burn. Maybe it's we can work on a big bang, but we can also explore opportunities while we have lack of leadership and maybe a slow process of reforms, what can be done because we still need the frameworks to underpin trade policies as well as certainty for the private sector. I'm speaking as a former trade minister where a lot of our trade reforms that we did or even investment reforms and policy reforms were to attract investment, but they were done with a framework of what were the international frameworks and standards. So we will be working on this together with the WTO. But just to mention two opportunities while we are facing uncertainties and lack of leadership in the multilateral trading system was the notion of club of clubs and open regionalism. I would say open club of clubs and open regionalism. The key is open. Club of clubs is about having like-minded countries move together where they can. And it doesn't have to include China and the US. It can be the JIS, Joint Initiative on Services, it can be on digital, but they need to be open. I know the digital one is open, even if you're not ready yet to sign on to the negotiations, you can participate and listen. And believe me, just by participating and listening is already capacity building for many developing countries, just to think about what these new areas are.

And then open regionalism with the African Continental Free Trade Area, CPTPP, in Maya, in the East Asia region, it's the Regional Comprehensive Economic Partnership of East Asia. These can reduce thick borders. It's not just about tariffs, as Alfred said, reduce the thick borders. Do it in a way which is deepening and broadening, open to members, open club, and link it to the multilateral system. I'm just going to quote one of your founders of Peterson, Fred Bergsten, "Keep the bicycle moving." That's what he always said. Just however way you can do it, just keep the bicycle moving. So let me close on that note, optimistic note that I'm not blue. I'm a half full glass person. And I hope that all of you will work together with us as partners, as collaborators, and to support countries like Kenya to really achieve not just a slow burn, but if it's not a big bang, at least a certainly significant impact for development for the people that matter in these countries. Thank you very much and thank you all of you for coming today.

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