SPECIAL

NO.137

TheGlobalTradeMapafterCovid-19:WheretoforGlobalCompaniesandInvestors,andPolicymakers?

AlexisCrowandSamirSaran

MAY 2021

?2021ObserverResearchFoundation.Allrightsreserved.Nopartofthispublicationmaybereproduced,copied,archived,retainedortransmittedthroughprint,speechorelectronicmediawithoutpriorwrittenapprovalfromORF.

Introduction

Inthewakeofrisingprotectionismoverthelasthalfdecade,thesuddeneconomicstopswroughtbyCOVID-19,thecorollarydisruptionsofsupplychainactivity,andshockstosupplyanddemand,commentators

fromacrosstheglobehavetrumpetedthe‘end’ofglobalisation.Indeed,evenpredatingthepopulistmovementsintheUK—culminatingintheBrexitreferendum—andintheUS,resultingintheTrumperaoftariffsandUSwithdrawalfromtradeagreements—someeconomistshadforecastedaplateauingandeventualtaperingofglobalisation.Withtheshiftfromtheoldtotheneweconomy—thatis,growthinservicesactivityandemployment—experiencedbymanyadvancedeconomies(includingtheUS,theUK,andtheNetherlands),lessgoods—orvolumeofmerchandise—arebeingmovedaroundtheworld.

Thiscarrieswithitcertainimplications,asthemanufacturingandindustrialerasassociatedwiththeproductionofgoodshavesignificantlyboostednationalincomeswithindomesticborders.Additionally,competitiveexportofthesegoodstoforeignmarketshasfurthercontributedtobothdomesticaswellasglobaleconomicgrowth.Looking

beyondgoods,cross-borderexchangesofservices(suchastravel,IT,andlegalandprofessionalservices),aswellasflowsoffinance,andexchangesofhumancapitalhavebeenintegralcomponentsoftheglobalisedbusinesslandscape,criticalforbuildingbusiness,profit,andgeneratingreturns.

Withthefutureoftradehanginginthebalance,what’sinstoreforcorporateexecutivesandinvestors?Formanybusinesses—eventhosewithapredominantlydomesticsalesbase—haveoftenreliedupontheprocessofglobalisationinordertocreatewealth,ultimatelytranslatingintoboostingeconomicgrowthandemployment.Willongoingtradetensions—aswellasreactionsbygovernmentstoonshoreproductioninthewakeoftheCOVID-19pandemic—actuallyprovetobetheendofthemulti-decadeprocessofglobalisationasweknowit?

Attribution:AlexisCrowandSamirSaran,“TheGlobalTradeMapafterCOVID-19:WheretoforGlobalCompaniesandInvestors,andPolicymakers?”O(jiān)RFSpecialReportNo.137,May2021,ObserverResearchFoundation.

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Evenpredatingthe

populistmovementsinthe

UKandintheUS,some

economistshadforecasted

aplateauingandeventual

taperingofglobalisation.

AsweshallseeinPartIofthisreport,forcompaniesandinvestorsinvolvedintheexchange,transmission,andsaleofgoods,services,technologyandfinance,globalisationendures.Granted,thelandscapehasdramaticallyshifted,andexecutivesshouldbenimbleandagileinnavigatingthenewenvironment,whichiscurrentlyinastateofflux.InPartII,weexplorepotentialsolutionsforglobalcohesion,includingthedigitalandgreenagendas,andthemodelofAsia.Intermsofsolutions,itisimportanttonotethatpolicymakerswillalsohave

todotheirpart,bothbyimplementingdomesticpoliciesinordertoaddresssocio-economicimbalanceswithintheirborders,aswellasbyreformingtheglobaltradingarchitecture,andbyfosteringconduitsofdialogueandcollaborationataregionalandagloballevel.Butbeforeweprogresstoexploresolutionsandopportunities,howdidwegethere?

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Globalisationandits‘Discontents’:ASituationReportonTradeinGoods,Mobility,Services,Tech,andFinance

Globalisationisdefinedastheprocessbywhichtechnologyandtheinformationandcommunicationtechnology(ICT)revolutionofthe1990s—enabledfastertransactiontimesand

processesforexchangesofcurrency,capitalflows,information,innovation,andgoodsandpeoplearoundtheworld.Thesetransmissionsofcommercehavebeenfacilitatedbynorms,laws,regimes,andtreatiesgoverningtrade—suchastheWorldTradeOrganization(WTO)atthegloballevel,andregionalagreementssuchasASEAN(AssociationofSoutheastAsianNations).Atanationallevel,thecreationoffreetradezonesfurtherfacilitatedtheeaseoftrade:forexample,ashippingcontainercanmovethroughaseamlesslogisticscorridorinJebelAliporttoDubaiairportwithinfourhours.1Beyondthemovementofgoods,infinancialservices,hubssuchastheCityofLondonandlatterlySingaporehaveattractedleadingtalentfromacrosstheglobeininvestmentbanking,trading,andassetand

wealthmanagement,withexecutivesandtheirteamsusingthesehubstopenetratethe‘spokes’ofbusinessinthegreaterEMEAandsouth/southeastAsianregionsrespectively.

Unfortunately,theverysameglobalinterconnectednesswhichfacilitatedwealthcreationandeconomicopportunitiesalsohadadarkside,whichmanifestedthroughoutthe1990sand2000s.Globalandtransnationalriskssuchasinternationalterrorism(e.g.,theattacksof9/11);environmentaldegradation;cyberattacks;pandemics;humantrafficking;andfinancialinstabilityandfinancialcrisesricochetedacrosstheglobe.Suchrisksmightpopupinonejurisdiction,and—bytheverysameconduitswhichfosteredthe‘brightside’ofglobalisation—easilyspreadacrossgeographies.

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Now,wemightsaythatwearedealingwithadifferentshadeofdiscontentwithinsocieties—particularlypronouncedwithinadvancedeconomies—forwhichtheprocessofglobalisationisoftenblamed:thatofrisingdomesticincomeinequality.Whilstglobaltradehasliftedbillionsofpeopleoutofpovertyandsharplyreducedinequalityatagloballevel(suchasthatbetweenChinaandtheWest,andsoutheastAsiaandtheWest),income,wealth,andopportunityinequalityhavebeensteadilyrisingwithincountriessuchastheUS,theUK,andItaly.2Clearly,thebenefitsofglobalisationhavenotbeensharedbyall—andyet,theglobalisationoflabourmarketsisbutonecontributingfactortorisinginequalitywithinthesesocietiessincethe1980s.3

Policymakersandbusinessleaderswithinthesecountrieshavetheoptiontoenactdomesticsolutionstoconfrontsomeofthesesocietalchallenges,whichrequirealong-termmindsetandhorizonforimplementation.And,asweshallsee,thesesolutionsmightbesharedwithemergingmarketanddevelopingeconomies(EMDEs)whichhavesufferedadverseshockstoincomeasaresultoftheCOVID-19pandemic.

Nevertheless,despitethepotentialfordomesticsolutions,someleadershavefounditbothpalatableaswellaspoliticallyconvenienttopointthefingerofblameatothercountries.RisingincomegenerationandeconomicadvancementinJapan,forexample,becameatargetofirewithincertaincirclesintheUSduringthelate1980sandearly1990s.4Morerecently,withintheUSandacrossEurope,some

activistpoliticiansandcommentatorshaveoftenhonedinontheeconomicgainsmadebycertaingroups(suchasimmigrantworkers,orspecificcountries)asaclearcausalfactorfortheerosionofthedomesticmiddleclass.

Insofarassomeofthesepopulistmovementshavesteamrolledintoelectoralvictories—suchasintheUSandintheUK—politicianshavebeenabletoactonsomeoftheircampaigntrailpromises.Moreover,somewhatideologicallyflexibleleadershithertoinoppositionhavealsofounditconvenienttobacktrackonsomepro-tradepolicies,inanefforttoappealtovotersinincreasinglypolarisedelectorates.Risingeconomicnativismhastakenvariousformswithinthelastfewyears,andhasinsomecasesbeenacceleratedinthewakeoftheCOVID-19pandemic.Again,regardlessoftheunderlyingcausesofdomesticinequalityandsocialanxiety,politicianshaveactedoutagainsttradeinthefollowingways:

Ructionsagainstgoods.Inrecentyears,somecountrieshaverathernarrowlyzonedinonthebalance—orrather,imbalance—oftradeingoods.FortheTrumpadministration,America’stradedeficitingoodswithcountriessuchasChina,

Canada,Mexico,andtheEUwereacriticalpointoffocus.Tariffsbecamethepolicytoolofchoiceasawayofaddressingsuchimbalances,which,whenimplemented,havehadmixedresults.5

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SupplychainsbecamedisruptedandfragmentedasmanufacturerssoughttoworkaroundtariffsimposedoncountriessuchasChina.SupplychaindiversificationoutofChina—orperhapsstillmaintainingafootholdinChinaandthendiversifyingelsewhere,orthe‘Chinaplusone’

strategy—hasbeenaboontohighlyproductivecountriessuchasVietnam,anddevelopingAsiancountriessuchasBangladesh(refFigure1).

Figure1:

Growthinmerchandiseexports,2008-2018(Averageannualpercentagechange)

Source:WorldTradeStatisticalReview20196

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Butwhilesomecountrieshaveprosperedfromthisdisruption,othershavebeenimpaired.Indeed,thetensionsoftheUS-Chinatradewar,aswellasbetweentheUSandEurope,renderedsomemajorexportersonthebrinkoftechnicalrecessionpriortotheoutbreakofCOVID-19,includingGermanyandJapan.7Lookingbeyondnations,theimpositionoftariffsalsoforcedmanycompanieswithintheUStocontendwithhigherinputcosts,curtailingmarginsformanufacturersinindustriessuchassteel,andalsoconstruction.

Inthewakeofthecoronaviruspandemic,leadersfromacrosstheworld—includingFrance,Japan,India,andtheUSandtheUK—haveprofessedadesiretore-examinetheirsupplychainresilienceandtoaddresspotentialvulnerabilities,whichmightincludethereshoringofproductionofcriticalproducts,includingpersonalprotectiveequipment(PPE)andmedicalequipment,pharmaceuticals,andfoodstuffs.8Additionally,ineffortsto‘buildbackbetter’,leadersinsomecountries—namely,theUSunderBiden—haveprofessedadesiretocatalyseamanufacturingrenaissanceacrossthewiderindustrialbase.9ThismightevenfeaturetheimpositionofataxonUScompaniesthatcreatemanufacturingjobsabroad.10Andyet,itshouldbenotedthattheseeffortstoboostdomesticproductionofgoodsandservicescomesatacost:quiteliterally,forthegovernmentinitsprocurement;forcompanies,manyofwhosemarginshavebeenknockedasaresultofthepandemic,andpriortothat,thetradetensions;theconsumer;andassomeargue,ultimately,toeconomicgrowth.11

Moreover,fosteringeconomicnativismwithregardtogoodscanalsobackfire,intermsofspurringothercountriestoimposequidproquoretaliatorymeasures.Thesecouldincludenon-tariffbarrierstotrade;increasingregulatorycomplexityanddiminishingtheeaseofdoingbusinessonthegroundforforeigncompanies;aswellasimposingtaxationinotherarenas,suchasadigitaloracarbontaxattheborder.Furthermore,theimpositionoftariffsmightcarrywithitunintendedconsequences,suchasstrengtheningallianceselsewhere,underpinnedbyincreasinglyrobusttradeties.

Nevertheless,somepoliticiansfinditalltooalluringtoharkbacktothehalcyondaysofyore,thusappealingtotheemotionsofavoterbasewhichhaslongfeltdisenfranchisedbytheglobalisationofjobs,andthediminishingofeconomicopportunity,purchasingpower,andasenseofpurpose.ThisisnotuniquetotheUS:indeed,theromanticismassociatedwithprotectingagricultureisprevalentwithinFrenchpolitics12—anundercurrentineconomicthoughtdatingbacktotheworkofFrancoisQuesnayinthe18thcentury.

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Restrictingmobility.Emotionalresponsestotheangstfeltagainstglobaltradehavenotbeenlimitedtogoods,orvolumeofmerchandise.Somepoliticianshavealsolookedtorestrictimmigration,vowingto“protect”domesticworkersfromaperceiveddisadvantage.13Certainly,inrecentyears,thishasbeenacampaigntrailpromiseofchoiceforsomepopulistleaders,particularlyontheright,whetherinFrance,Italy,Germany,theUK,ortheUS.Additionally,throughouttheCOVID-19pandemic—duringwhichmobilityhasoftenbeenassociatedwithmorbidity—leadershavealsosoughttolimitthemovementofpeopleacrosstheirborders.AsoflateJanuary2021,101countrieswerestillrestrictingthemovementofpeopletocrosstheirnationalborders.14

Lookingbeyondthecurrenthealthcrisis,itisimportanttonotethatcurtailingmobilityalsocomesatacost.Infact,duringCOVID-19,asharpreductioninmigrantagriculturalworkerswithinOECDcountrieshascontributedtoasharpriseinfoodprices,whichhavereachedasixyearhigh.15Priortothepandemic,restrictionsonimmigrationalsocontributedtolabourshortagesingoodsproducingsectorsintheUS,includingmanufacturing,construction,andagriculture.16Intherealmofservices,restrictionsonimmigrationalsothreatensthevitalityofhighereducationin

countriessuchastheUS,wherebothpublicandprivateuniversitiesmightheavilyrelyonforeigntuitions.And,inconsideringhumancapitalwithinthedigitaleconomy,somecountriesfaceacriticalskillsgapofspecialistworkers,spurringgovernmentssuchasCanada,China,GermanyandSingaporetorethinkpoliciesonlabormigrationandICTeducation.17

Tradeinservices.Despitemountingrestrictionsonmaterialgoodsandphysicalbodies,globaltradeinservicescontinuestosteadilyrise.AswecanseeinFigure2,eveninthewakeofmajorpopulisteventssuchastheBrexitreferendumintheUKandtheadventoftheTrumpadministrationintheUS,servicesexportscontinuetogrowonarobusttrajectoryatagloballevel.(Itshouldalsobenotedthatdespitethepoliticallysensitivetopicofgoodsdeficits,theUSactuallyrunsasurplusintradeinserviceswiththerestoftheworld-andwithitsmajortradingpartners,includingChina,Canada,andtheEuropeanUnion).18

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Figure2:

Valueofworldservicesexportsbycategory(USDBillions)

Source:

WTO

Suchservicesincludetelecommunications,legal,businessandprofessionalservices,andtravel.Inconsideringthelatter,globalairpassengertraffichitanall-timehighin2019andinthepre-pandemicmonthsof2020.19AlthoughCOVID-19severelydisruptedtheglobaltravelindustry,oncemultiplevaccineshavebeensuccessfullydisseminated,andpassengersfeelsafetotravelagain,tourism-relatedleisuretravel(andonemightevenargue,thelion’s

shareofpre-COVID19businesstravel)islikelytocontinueitsinexorablerise.Granted,theairlineindustry—andhospitalitybusinessesdependentuponglobaltravel—maycontinuetoundergoconsolidationamidsttepiddemand,withtheoutlookpotentiallyturningforglobalairtravelpassengertrafficaround2023-2024.20

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Whilstmanyexecutivesandbusinessesareheldinaholdingpattern,theworkingfromhome(WFH)phenomenonhasledtoablossomingofthetransmissionofspecificITservicesacrossborders.Accordingly,somecommentatorshaveproclaimedthedawnof‘e-globalisation’.Withgrowingdemandforanduseofartificialintelligence(AI),companiesnolongerneedtoflocktotechhubssuchasBangaloreorSiliconValleytoaccesscutting-edgesoftware:rather,theycandosofromtheirownhomeviacloudcomputing.21

Tensionswithintradeintech.Althoughcountries,companies,andindividualsareimportingandexportingmoreservicesthaneverbefore,abifurcationhasdevelopedbetweentheUSandChinawithregardtocertainaspectsoftradeintechnology.Indeed,manycommentatorshavereferredtothisasapossible‘technologicalColdWar’betweenthe‘greatesttwopowers’intheworld.22Thetensionisprimarilyrootedindivergingperceptionsoftherelationshipbetweentechnologyandnationalsecurity.

Ifwedividetechnologyintoseveralcategories,suchas5Gandpipesandmastsfortelecoms;motherboards;semiconductorchips(highendandlowend);software;AIanddata—BeijingandWashingtonharborconflictingviewsastowhichoftheseelementsareinterwovenwiththeirownnationalsecurity.ThishascertainlymuddledthecommerciallandscapenotonlyforUSandChinesecompaniesinvolvedinthesesubsectors,butalsoforbusinessesdomiciledincountriesincludingJapan,Germany,andtheNetherlands,aswellasforcountriesincludingColombiaandBrazil.23Investors

andcompanieswithstakesinthegroundinboththeUSandChinaareconcernedaboutspillovereffects—thatthesetensionsmightwellcomplicatethelandscapeforfixedcapitalinvestments,orindeedtargetingsalesandaconsumerbaseintherespectivecountries—orintheworstcasescenario,leadtoa‘fulldecoupling’betweenthetwoeconomies.24

Connectedtothis,theUSandseveralothergovernmentsaroundtheglobehavesteppedupthescreeningandrestrictionofforeigninvestmentintheircountries—ostensiblydirectedtowardscapitalfromChina.Raisingconcernsaboutnationalsecurity,somegovernmentofficialshaveblocked,‘cleansed’ordelistedChineseentitiesfromtheirdomesticcommerciallandscapes.25AlthoughsomespecificEuropeancountrieshavealsopassedlegislationtorestrictinboundinvestmentinspecifictargetsorsectors,26theEU-ChinaComprehensiveAgreementonInvestment(CAI)—signedattheendof2020—wasdesignedtoimprovelawsandpracticesformutualinvestmentbetweenChinaandtheEU,atafederallevel.Whiletheagreementhasnowbeenshelved,27priortothelatesttensions,thenegotiationsdiddemonstrateawillingnessforbothsidestoconveneinordertopotentiallystepupthelevelofinvestmentsbetweenthetwocountries.

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AbifurcationhasdevelopedbetweentheUSand

Chinaregardingaspectsoftradeintechnology;thetensionisrootedindivergingperceptionsoftherelationshipbetweentechandnationalsecurity.

Tradeinfinancialservices:fromtechnologydecouplingtofinancialhoneymoon?Whiletradetensionshaveseepedintorestrictinginvestmentsincriticalsectorswithinsomecountries,Chinahasactuallyreducedits‘negativelist’forforeigncompaniestoinvestinmainlandChina,withinsectorsincludingoilandgas,theautomotiveindustry,andcruciallyforsomeUSandEuropeanbanks,financialservices.28

Indeed,someUSbankshaveinvestedbillionsofdollarsinChinathroughout2020,andhavemovedtowardfullownershipoftheirventuresonthegroundinmainlandChina.29Inthewealthmanagementspace,oneFrenchcompanyhasalsotakenmajorityownershipofitsventureonthegroundwithamainlandChinesebusinesspartner.30GiventhatmainlandChineseassetsaresettoquadrupleingrowthwithinthenextdecade,someoftheworld’smostprofitablecompaniesfindthisincreasedmarketaccesstootantalisingtoresist.31

Infact,onemightarguethatthetetheringofUSandEuropeanfinancialservicestoChinesewealthmightactuallypreventtheUSandChinafromafull-scaledecoupling.

Itisalsoimportanttonotethatinthinkingaboutthepotentialfortradeinfinancialservicesacrosstheglobe,actorsarenotlimitedtotheUSandChina.Singaporeisonecountrywhichhasmagnetisedbothtraditionalaswellasnewplayersinbankingandinfintech.Bycreatingaregulatorysandboxinwhichcompaniescaninnovatewithintheparametersasafetynetimplementedbytheregulators,banks,tech,andevenridesharecompanieshaveusedSingaporeasalabandalaunchpadforgrowingbusinessesinfintechandfinancialinclusion.32Singaporehasalsoprofesseditsintentiontobecomeahubofdigitalconnectivity,effectivelyfosteringdigitalcorridorswithothercountrieswithinAsiaandLatinAmerica,wheretheircompaniescanengageincross-bordertransactionswithinmutualunderstandingsofdataprivacyande-commerceregulations.33

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WhataretheSolutions?

Thedigitalrealm

Intherealmofdigitalmarkets,amultilaterallegalframeworktosafeguardconsumerinteresthaseludedconsensus.ThisisprimarilybecauselargetechfirmsareoftenfromtheUS,thusleavingavacuumintheglobalcommunity,andthereforealackofgeographicaldiversityandrepresentationontheglobalstage.Evenintheabsenceofacommoninternationalorder,someclarityhasstartedemergingonhowtoconfirmthatthesefirmsoperatetotheadvantageofhostcountriesandtheirusers.

Therapiddigitisationofbusinessesoverthelastcoupleofdecadeshasposedseveralpolicychallenges.Amongstthem,acrucialchallengeistheinequitabledistributionofwealthwithinandacrossnewlydigitisedvaluechains.Ideally,agentsreapproportionalincentivestothepotentialrisksthattheybear.Thisequation,however,doesnotholdgooduniversallyinthedigitaleconomy.Forinstance,muchtothechagrinofpresspublishers

theworldover,theirdecliningadvertisingrevenuesareincreasinglycapturedbysocialmediaandsearchengineplatforms.Whiletheseplatformsusethecontentthatpublishersproducetocaptureuserattention—andtheconcomitantdataandadvertisingrevenue—publisherscanloseoutonthisrevenueasusersmaynotvisittheirwebpages.AsurveyconductedbytheUniversityofCanberrashowedthat62percentoftheusersreliedonsocialmediaandnewsaggregatorsforonlinenews;astudybyReutersInstitutefoundthatonly18percentofthesurveyedIndiansuseddirectpublisherwebpagestoaccessnews;asimilartrendwasalsoobservedinFrance34.Asavibrantandhealthymediaiscriticaltothedemocraticorder,severaljurisdictionssuchasGermany,France,andAustraliahavemulledappropriatepolicyresponsetocorrectthelopsidedincentivedistribution.35

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Mostrecently,AustraliaadoptedtheNewsMediaandDigitalPlatformsMandatoryBargainingCodethatmandatesnegotiationbetweensocialmediaplatformsandpublisherstoshareadvertisingrevenue.36Inthewakeofsuchglobalefforts,variousorganisations,frombigtechtomedianetworks,aresupportingsmallandmedium-sizednewsorganisationsproducingoriginalnewsforlocalcommunitiesthathavebeenhard-hitbytheCOVID-19pandemic.37

Anotherareawherethereseemstobemoreclarityonenforcementisantitrustactionsagainstbigtech.Previously,theEU,whichhasbeenattheforefrontofantitrustactionagainstbigtechfirms,hasbeenaccusedofdiscriminatingagainsttheUSfirms.Lastyear,however,witnessedseveralUSstatesfilingcomplaintsagainstbigtechcompaniesforantitrustviolation.38Infact,thesecaseslargelyparalleltheEUcases.Thus,anascentconsensusappearstobeemergingonbothsidesoftheAtlanticonhowtodrawthe‘rulesofthegame’fortechfirms.

Dataprotectionandsecuringuserprivacyinthedigitisedworldhasalsoseenmoreconcreteefforts.Tothisend,theEUGeneralDataProtection2018hasofferedacommontemplatethathaseveninspiredCaliforniaConsumerPrivacyAct(CCPA).39Acommontemplatethatatleastservesasastartingpointwouldgoalongwayinconfirmingeaseofcomplianceandavoidingregulatoryarbitrage.

Thisisnottosaythatallcontentiousissueshavebeenresolved.Averycomplicatedissuehasbeenthetaxationofadvertisement-generatedrevenues.Hitherto,suchrevenueswouldescapethetaxationasdigitalfirmsmaynothavealocalpresence.AlthoughtherehasbeenanattemptbytheOECDtodeviseaframeworkfordigitaltaxation,40amultilateralsolutionhasnotevolvedsofar.Againstthisbackdrop,theUK,France,IndiaandItalyamongothercountrieshavestartedlevyingtaxationonadvertisementrevenues.41Amultilateralframeworkis,therefore,theneedofthehourtoavoidanymoretradewarsthatthepandemic-strickenworldeconomycannotbear.42Thefactthatsomeearlyconvergencehasemergedoncontentiousissuesisapositivedynamic,andsuggeststhateventhoughanoverarchingframeworkgoverningthedigitalrealmiselusivesofar,consumerinterestwillbetheguidingforceindeterminingthenatureofregulation.Thus,auniform,multilateralapproachtowardsdigitalmultinationalsacrossjurisdictionsmightavoidthebalkanisationofdigitalgovernance.Theregulatoryclarityandcertaintywillhelpbusinessestoexpandacrossborders,investorstofunddigitalstartups,andpolicymakerstoleveragetheindustryforpost-Covideconomicrecovery.

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Thegreenpiece:trade,climate,andthesustainabilityagenda

Climateactionisthebaseonwhicheconomicpoliciesofthe21stcenturyarelikelytobeformulated–increasingly,atleastinthedevelopedworld,‘goinggreen’isthenewindustrialandgrowthstrategy.Inlinewiththebacklashagainstglobalisation,thisagenda,too,mightbemorenarrowlyfocusedondomesticremitsthanlaunchingtrulyglobalsolutions.

Forexample,recentdiscussionsontheEU’scarbonborderadjustmentmechanism,essentiallyanemissions-relatedimporttariff,arethefirstsignofmovementtowardsaglobal“carbonclub”,43shuttingoutexportsfromcountrieswhichdon’tcomply.ThisleavessomeexportorientedEMDEswitharangeoflimitedandundesirablepolicyoptions.Integratingintotheinternationalemissionstradingsystemimpliestaxingcarbonatrateswhichwouldbringlocaleconomicactivitytoastandstill.Remainingoutsidethetradingsystemimpliesbeingshutoutofexportmarkets,orpayingthebordertax,effectivelyatransferofrevenuesfrompoortorichcountries.Squaringthecircleoninternationalcarbonpricingwillrequirecreativesolutions,andislikelytobethemostimportantitemonthe2021UnitedNationsClimateChangeConference(COP26)agendainGlasgow.

Environmentalsafeguardsintradeagreementsareanotherpointofcontention.WhiletheWTOhasnospecificagreementonsafeguards,tradeagreementsareincreasinglyadoptingmeasuresaimedatprotectingtheenvironment.Theseprovisionsarecontroversial:ontheonehand,green-eyedcriticsadoptthepositionthatexcludingenvironmentalconditions(suchasintheRegionalComprehensiveEconomicPartnership(RCEP)isamissedopportunitytowardsmakingtrademorecompatiblewithclimatepolicy.Forothercritics,environmentalprovisionsmightrepresentanelementofprotectionism,aimedatexcludingproductsfromcertainjurisdictions.

Thegreeningoffinancialflowsrepresentsbothopportunityandrisk,andEMDEshavealongwaytogoincapturingtheirshareoftheburgeoninggreenandenvironmental,socialandgovernance(ESG)markets.WhileassetmanagersintheWestincreasinglylooktoemergingmarketsinthehuntforyield,theseinv