Those who believe that economic integration is the key to global recovery must work together to fight protectionism, Trade and Industry Minister Chan Chun Sing said yesterday.
Speaking at a virtual conference hosted by the South China Morning Post, Chan said the rules-based global economic order that has benefited countries large and small faces deep challenges, including tensions geopolitics, budgetary tensions and growing income disparities within and between countries.
He said these challenges will persist well beyond the Covid-19 pandemic, which alone has further accentuated protectionist tendencies by exacerbating budget pressures in many economies.
“Trade tensions as well as the political reorganization induced by global production and supply chains are all detrimental to the proper functioning of our global economic system,” he said.
Meanwhile, the World Trade Organization (WTO) is in a state of paralysis, added the minister.
Established in 1995 as a successor to the General Agreement on Tariffs and Trade, the 159 members of the WTO have been criticized for its inability to enforce the rules of the multilateral trading system or to reform and remain relevant to policy. new trade and economic issues such as the digital economy, investment, competition, environment and climate change.
Repeated attempts to relaunch the Doha round of negotiations that began in 2001 to lower trade tariffs around the world have failed.
The WTO’s appeals body, which rules on trade disputes between member countries, effectively ceased to function in December last year due to disagreements over the appointment of new panel judges.
Singapore is part of the Ottawa Group, led by Canada, of WTO members determined to achieve meaningful, realistic and pragmatic reforms at the WTO in the short, medium and long terms.
Mr Chan said the budget strains induced by Covid-19 risked increasing recourse to ‘beggar-for-neighbors’ exchange rate policies, as well as unsustainable fiscal and monetary policies. It has also dramatically increased global competition for tax revenues.
“To protect national revenues, some governments around the world are aggressively pursuing mercantilist policies, including pressuring companies to come back,” he said.
The trend towards relocation and nearshoring has intensified since the start of the trade war in July 2018 between the United States and China, with many companies seeking to relocate their businesses and factories to their homes or to jurisdictions close to the market. target where they can avoid tariffs and potential. sanctions compliance issues.
Chan said developments in international tax policy, such as the Base Erosion and Profit Shifting Initiative (BEPS) 2.0, will also have an impact on how countries are doing. competition, where investments go and affect how company profits are allocated and taxed.
BEPS refers to the tax planning strategies used by multinational companies that exploit loopholes and inadequacies in tax rules to avoid paying taxes. BEPS 2.0 aims to address the tax challenges arising from the increasing digitization of the global economy.
Mr. Chan also mentioned the data location policies – restrictions or practices affecting cross-border data flows, digital products, internet services and other restrictive technology requirements – applied by some countries.
“Digital trade barriers are another example of such policies, as governments erect walls to keep data and its benefits, including monetary ones, in the country,” he said.
At the same time, new technologies and disruptive business models are widening the gap between the disruptors and the disrupted, he added.
“As countries, businesses and workers experience uneven effects of geo-economic disruption, the dispersion of corporate growth, incomes and wages will increase. A fragmented global economy will worsen the inequality of opportunity among the well-to-do and the poor. “
Amid growing disparities, people will question the benefits of globalization giving rise to protectionist tendencies, he said.
Chan said to resist the siren call of anti-globalization policies, countries must unite and commit to maintaining and strengthening the world trading system.
Countries must also work together to improve cross-border digital integration by negotiating economic deals in forward-looking areas such as data, finance and technology, he added.
He said that to strengthen its position as a business hub, Singapore is working closely with like-minded international partners to improve physical and digital connectivity.
Examples of such efforts include digital economy agreements signed with Australia, Chile and New Zealand, as well as agreements to improve access to trade finance, such as the one signed with the United States. in December, he said.