SINGAPORE – Those who believe that economic integration is key for global recovery must work together to counter protectionism, Trade and Industry Minister Chan Chun Sing said on Friday (Feb 26).
Speaking at a virtual conference, organised by the South China Morning Post, Mr Chan said the rules-based global economic order – which has benefited countries, both large and small – faces profound challenges, including geopolitical tensions, fiscal strain and widening economic disparities both within and between countries.
He said these three challenges will continue to persist far beyond the Covid-19 pandemic, which, on its own, has further accentuated protectionist tendencies by aggravating the fiscal stress in many economies.
“Trade tensions as well as politically induced reordering of the global production and supply chains are all detrimental to the proper functioning of our global economic system,” the minister said.
Meanwhile, the World Trade Organisation (WTO) is in a state of paralysis, he added.
Established in 1995 as a successor to the General Agreement on Tariffs and Trade, the 159-member WTO has come under fire for its inability to enforce rules of the multilateral trading system or to reform and remain relevant to emerging trade and economic issues such as the digital economy, investment, competition, the environment and climate change.
Repeated attempts to revive WTO negotiations that started in 2001 to lower trade tariffs around the world, called the Doha round, have failed. The WTO’s appellate body, which adjudicates trade disputes among member countries, effectively ceased functioning in December 2020 amid disagreements regarding the appointment of new judges to the panel.
Singapore is part of the Canada-led Ottawa Group of WTO members committed to finding ways to achieve meaningful, realistic and pragmatic reforms to the WTO over the short, medium and long terms.
Mr Chan said the pandemic-driven fiscal strain risks the increasing use of beggar-thy-neighbour exchange rate policies, as well as unsustainable fiscal and monetary policies. It has also greatly intensified the global competition for tax revenue.
“To protect domestic revenues, some governments around the world are aggressively pursuing mercantilist policies, including pressurising companies to reshore,” he said.
The reshoring and nearshoring trend has intensified since the start of the trade war in July 2018 between the United States and China, with many companies looking to relocate their businesses and factories back home or to jurisdictions near the target market where they can avoid tariffs and potential sanctions compliance issues.
Mr Chan said that international tax policy developments such as the Base Erosion & Profit Shifting (BEPS) 2.0 will also impact the way countries compete, where investments go and affect how corporate profits are allocated and taxed.
BEPS refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax. BEPS 2.0 is aimed at addressing the tax challenges arising from increasing digitalisation of the global economy.
Mr Chan also mentioned the data localisation policies – restrictions or practices affecting cross-border data flows, digital products, Internet-enabled services and other restrictive technology requirements – being pursued 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, within the country,” he said.
At the same time, new technologies and disruptive business models are accentuating the gap between the disruptors and the disrupted, he said.
“As countries, companies and workers experience unequal effects from the geoeconomic disruptions, the dispersion of growth, corporate earnings and wages will grow. A fragmented global economy will exacerbate the inequality of opportunities between the haves and the have-nots.”
As a spillover effect of widening disparities, people will question the benefits of globalisation giving rise to protectionist tendencies, he said.
Mr Chan said to resist the siren call of anti-globalisation policies, countries should band together and commit to uphold and strengthen the global trading system.
“Many major powers are facing significant domestic challenges and can expectedly be more circumspect about shouldering global responsibilities for integration. But for those of us who have reaped the fruits of economic integration, we too have a responsibility to contribute towards reinforcing the international rules based trading system.”
Countries must also work together to improve cross-border digital integration by negotiating economic agreements in forward-looking areas such as data, finance and technology, he said.
Said the minister: “The greater and safer the global digital commons, the better our chances to leverage data and digital services to propel our next wave of growth. Deeper cross-border intercompany linkages will also help to reinforce the reality that economic integration is key for global recovery.”
Mr Chan said Singapore has a vested interest in ensuring that the rest of the world steps up to manage these challenges. As an open and connected economy, the Republic’s progress is ultimately linked to the success of the global economy.
“We have put in place policies to help Singapore navigate the fractious global trading environment. Our starting assumption is that we are not going back to a pre-Covid world. Instead of looking backwards, we are looking forward to the opportunities in a Covid and post-Covid world.”
Mr Chan said Singapore is also doubling down on efforts to reinforce its position as a global business hub.
“We believe there is still a role for trusted hubs where businesses can aggregate talent, mobilise capital and protect intellectual property,” he said.
To reinforce 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 financing, such as the one signed with the US last December, he said.