Policy Briefs

Trade & Investment: B20 Brasil 2024 Policy Paper

Total trade among the B20 member nations amounts to a significant USD 21.70 trillion, accounting for 45% of global trade in 2022, with the US, the EU, and China being the premier trade hubs. International trade not only bolsters economic development but also promotes sustainability and fosters innovation.

Over the last five years, the global economy has faced challenges in the form of COVID19 and geopolitical conflicts which led key economies to adopt inward-looking policies and raised concerns in matters of sustainability and energy security. As a result, the Compound Annual Growth Rate (CAGR) of global trade fell from 4% from 2014-2017 to 2% from 2017-2022.

To promote greater trade opportunities among countries, B20 Brasil prioritized food security, social inclusion, and environmental issues by finding the right balance between economic autonomy and market openness while also recognizing the importance of trade and commerce by promoting policies that foster sustainable development, affordable food security, and health equity.

Given this background, the B20 Brasil Task Force on Trade and Investment (T&I) developed a policy paper which offers the following three recommendations (Figure 1) to promote inclusive growth across all nations.

Figure 1: Recommendations to Enhance Global Trade and Investment

The above recommendations are enumerated below.

Recommendation 1: Improving T&I Governance

The WTO has been unable to produce a multilateral trade liberalization agreement since 1994 though the moratorium on tariff measures related to e-commerce transactions and the Joint Statement Initiative on Domestic Service Regulation during the WTO Ministerial Conference (MC13) in February 2024 were steps in the right direction.

However, ambiguity in reforming and reinstating the WTO Dispute Settlement Body (DSB) and lack of clarity on agriculture negotiations during the MC13 have led to an increase in adoption of plurilateral or regional agreements among certain WTO member states. This is also evident from the following figure.

Figure 2: Number of cumulative Regional Trade Agreements in force by year, 1994- 2024

Source: B20 Brasil Policy Paper on Trade and Investment; WTO. Regional Trade Agreements Database. Available at: https://rtais.wto.org/UI/charts.aspx> Accessed in October 2024.

In this context, the following policy actions can be undertaken to promote inclusive and sustainable trade and an enhanced governance structure for policies related to trade and investment.

Policy Action 1.1: The policy paper recommends active participation from the private sector while also endorsing the restructuring of the WTO Dispute Settlement Body (DSB) with measures such as defining stringent timelines, limiting the page lengths for submission and filings, among others.

There is also a need to ensure effectiveness of WTO’s notifications, monitoring, and consultation systems through permanent supervision with a monitoring committee to ensure accountability and swift resolution of any conflicts, and communicating the presence of trade barriers through a feedback mechanism.

Policy Action 1.2: Finalizing the Joint Statement Initiative (JSI) on e-commerce including provisions for “Data Free Flow with Trust” and including the JSI on Investment Facilitation into the Annex 4 of the Marrakesh Agreement. The paper recommends implementing rules on climate change, environmental goods and services, circular economy and subsidies to promote carbon-neutral economy.

Through the above suggestions, the global economy can benefit from greater industry participation and reformation of global governance institutions.

Recommendation 2: Promoting Sustainable and Resilient T&I

To mitigate the adverse effects of climate change, the world has adopted strategies such as EU’s Carbon Border Adjustment Mechanism (CBAM) and Inflation Reduction Act (IRA) which have increased the complexity of global trade.

In addition to carbon pricing regulations, subsidies account for 50% of the restrictive trade measures introduced in 2023. Harmful trade measures were also introduced in sectors such as agriculture, horticulture, and market gardening, basic metals and basic chemicals in 2023.

To facilitate use of lower emission technologies such as solar photovoltaics and green ammonia, there is a need to ensure free flow of trade of such products and technologies. Initiatives such as CBAM impact the developing world and also reflect the need for carbon border adjustment measures that align more with WTO standards and rules. There is a need to promote good regulatory practices and interoperable taxonomies facilitating harmonization of regulatory standards among the WTO member states.

Given this backdrop, B20 Brasil 2024 policy paper suggests two policy actions to promote sustainable and resilient trade and investment infrastructure.

Policy Action 2.1: There is a need to adopt globally accepted methodologies for calculation of carbon footprints while also considering various sectoral requirements. These methodologies should be sensitive towards the needs and wants of micro, small and medium enterprises (MSMEs), especially in least developed countries (LDCs) and developing countries, thereby ensuring accessibility and affordability.

Countries can agree on good regulatory practices and interoperable taxonomies to facilitate policies related to climate change and also adopt a common agreement among countries to promote export financing.

Policy Action 2.2: Trade policies should include concerns of the private sector on trade restrictive practices and such issues should be discussed among the G20 members during the G20 T&I Working Group Sessions. A process should be initiated to review unilateral trade restrictions implemented by G20 members in the past three years.

The above recommendations promote inclusive growth while also expediting the global objective of net-zero transition.

Recommendation 3: Making T&I More Efficient

Streamlining custom procedures improves trade efficiency and enhances participation from MSMEs, women, and LDCs. Implementation of commitments within the Trade Facilitation Agreement (TFA) made by the WTO member nations during B20 Italy 2021 has enhanced customs efficiency and mitigated ambiguity.

However, deeper implementation of paperless trade is the need of the hour as the implementation of paperless trade measures was at 69% in 2023 as per an UNCTAD report. With increased use of digital technology, data protection is another subject of importance, especially for LDCs as 52% of LDCs have yet to introduce any such measures in their countries.

In terms of trade finance, financial institutions have been hesitant to provide finance, especially to MSMEs, largely due to macroeconomic issues such as the rise in interest rates and geopolitical uncertainties. Further, lack of dollar liquidity, inadequate credit ratings, and concerns with Know-Your-Customer (KYC) norms, among others are reasons for the large trade finance gap.

Figure 3: Trade Finance Application and Rejection by Major Client Segment in 2022 (%)

Given this backdrop, B20 Brasil recommends the following policy actions.

Policy Action 3.1: Adoption of digital technology methods for customs clearance through international cooperation and by promoting public- private partnerships will enhance trade facilitation. Further, cross border flow of digital data can be facilitated through interoperability of standards and protocols while advancing implementation of legislation related to data security and addressing cybercrime through global cooperation and regulations.

Policy Action 3.2: Deeper access to trade and export finance, especially for LDCs, women, and MSMEs, through adoption of cutting-edge technology and establishing an optimal regulatory framework while also providing adequate support to the export programs of Governments.

Implementation of the above recommendation will help in achieving three UN Sustainable Development Goals (SDGs), namely, zero hunger, decent work and economic growth, while also fostering innovation and building robust Global Value Chains.

Read the full paper here