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Dr. Ngozi Okonjo-Iweala: Re-globalisation, resilience, and shaping the future

Leadership Insights newsletter story

Dr. Ngozi Okonjo-Iweala GCON, the Director-General of the World Trade Organization (WTO), talks to ICS Leadership Insights about geopolitical impacts on trade, globalisation and building a more resilient supply chain for today’s modern world.

27 September 2024
Dr. Ngozi Okonjo-Iweala GCON, the Director-General of the World Trade Organization (WTO). Credit: WTO

As global economic fragmentation intensifies, largely driven by escalating geopolitical conflicts, what key trends is the World Trade Organization (WTO) observing in relation to this shift? 

The world is facing strong geopolitics, this, combined with the vulnerability seen in supply chains during the pandemic, has led to this notion of friendshoring, nearshoring, and reshoring. 

At the WTO, we see a growing tendency for countries to prioritise trade with like-minded countries, investment flows are following a similar pattern. We’ve modelled this using UN-voting patterns, and we see this kind of trade growing faster.

And what are some of the specific impacts you are seeing with this shift?

I think we are seeing certain sectors impacted. For example, on the export of certain technologies like semiconductors.

We are trying to avoid this kind of fragmentation because, as an example, if the world were to break into two trading blocs, there would be a 5% loss in real global GDP in the long term. That’s like losing the economy of Japan. In addition, there will be double-digit GDP losses for developing countries.

Having a supply chain concentrated in one country or a small set of countries is not the best way to have resilience for the world. If 95% of semiconductors or, say, critical mineral processing is concentrated in one country, that’s something to think about.

With vulnerabilities in concentrated supply chains, what steps does the WTO recommend to strengthen global supply chain resilience?

We are suggesting an alternative strategy that we call re-globalisation. We are saying to CEOs and governments that we can build resilience in the world by deconcentrating supply chains. If you concentrate production in one or two areas, you can also be hit by climate change with drought, flood, fires, and this kind of phenomenon we are already seeing now.

Why don’t we also use the decentralisation of supply chains as an opportunity to bring in countries that were previously left at the margins of the global trading system. This will build resilience, and you also are inclusive. 

We saw the hyper-globalisation of the 1990s-2000s integrated much of the world, China, Eastern Europe, and India, that was not previously integrated. Now the rest of the world, the Global South, needs to too. It will benefit the entire world to integrate them into the global trading system. So instead of China plus one, which means China plus Vietnam, why not China plus Bangladesh? Or China plus Brazil? Or China plus South Africa?

How can decentralising supply chains for resources such as critical minerals help ensure a just transition for developing countries, allowing them to benefit?

There’s a natural opportunity now with critical minerals found in the global south and developing countries. And normally the idea would be to build infrastructure, extract these minerals and send them somewhere to be processed. 

We are suggesting that part of this reconfiguring of the supply chain should be to build the supply chains and value chains in the countries where the critical minerals are found, particularly since some of these countries have a comparative advantage in green hydrogen and clean energy. This would mean they can actually cleanly process the critical minerals, and then create jobs in these countries that have many young people, and create economic prosperity rather than exporting it out. 

It could also mean different kinds of shipping, for example, the creation of more regional supply chains. Transportation is costly; it’s cheaper to ship from China to Lagos than from Cape Town to Lagos.

What are your thoughts on increasing protectionism impacting global trade flows and how it impacts the robustness of the supply chain?

We are concerned about creeping protectionism and unilateral measures. Some of that protectionism is being done to encourage the fight against climate change and the move to net zero by 2050, which we are very much in support of at the WTO. Climate change is an existential threat, and trade should be contributing positively.

Some of the measures, however, such as goods requiring local content, are things to be looked at more closely. So too are subsidies. Some subsidies are good and we at the WTO have no ideological view towards subsidies, whether it’s in shipping or developing new products or new approaches to climate change. However, we must be careful that we don’t enter into a subsidy race to the bottom. Negative externalities can be significant, including the impact on developing countries that do not have the fiscal space within which to subsidise.

What is WTO’s view on the mechanisms required to create a greener global supply chain? 

We recently met with a number of shipping CEOs and there was an excellent conversation about trade and climate, and the fact that decarbonisation of the environment must involve shipping. Shipping will be important as a vital transporter of green fuels but faces challenges of access to these fuels at scale.  

A key consideration is today’s approach to carbon pricing and taxes, which is very  fragmented. There are currently 78 different systems operating globally, according to the World Bank. We understand that a carbon tax on the price of shipping is in the works at the IMO, we at the WTO are advocating a global approach to carbon pricing.

We are coordinating a task force with other multilaterals like the IMF, the World Bank, UNCTAD, UNFCCC, and the OECD to try and develop such a global approach.

A question must be what is done with the monies that are gathered from carbon pricing? Can it be used to cushion developing countries and create a more just transition. 

What final message would you like to leave shipping leaders with?

Shipping should be looking at the new trends in trade and asking itself how it aligns with them, such as growth in services trade, a large part which is digitally delivered. Of course, as yet these trends, while growing, do not make a major part of overall global trade; goods trade accounts for $23 trillion out of a total $30.5 trillion in 2023 (on a balance of payment basis).

But amid changes to global trade, shipping needs to speak up on behalf of the free, fair, predictable, multilateral trading system, much more than I’ve heard them doing in the past. I told the shipping CEOs this recently, if you love the WTO and what it does, we need to hear you telling leaders to strengthen the system and make it work for everyone.