- Governments need to broaden their policy coordination to include areas like public health and climate change.
- Rules-based, open regionalism will promote cross-border trade, investment, and mobility as engines for recovery.
- Efficient and resilient “software” including effective rules, regulations, and procedures, and reliable risk-based business continuity are crucial.
The COVID-19 pandemic triggered the first economic contraction in Asia and the Pacific in six decades. Though regional trade fell by less than the world average, now more than ever the region’s developing economies need to coordinate policies to build a lasting and resilient recovery.
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The path to recovery faces significant obstacles that pose risks to trade and GDP growth. Trade conflicts are straining the multilateral trading system. Protectionism is rising, due to the perceived uneven distribution of opportunities and gains from trade openness. Export restrictions on essential commodities and supplies at the start of the pandemic could be reinstated in future crises. In the face of global market uncertainties, lean supply chains have been exposed to disruptive risks and trade-offs between efficiency and resilience.
Firms, therefore, are seeking to improve supply chain resilience against future shocks by recalibrating international production networks, as well as accelerating the adoption of digital management of supply chains. COVID-19 ushered in a digital transformation which significantly mitigated some of the pandemic’s adverse impacts. But it also exposed the pressing need for more effective regulation across borders to facilitate faster and wider adoption of technology, while managing its unwanted consequences. Regional coordination in governance around digital service provision, data flow, privacy, and cyber security, has struggled to keep pace.
If we’ve learned one thing from this crisis, it’s that no single economy can go it alone on the path to recovery. The region requires collective efforts to drive and sustain recovery, considering the huge impact the pandemic has had on output.
In particular, governments need to better coordinate policies on three critical fronts:
1. Broader macro risk management
Governments need to broaden their policy coordination to include areas like public health and climate change to build economy-wide resilience and ensure business continuity. This will help minimize disruptions to economic activity during crises, while maintaining confidence that public interests are protected.
This is a tremendous opportunity.
The region’s economies can work together to improve their ability to manage macro risks by sharing knowledge and experience and enhancing capacity where needed.
For example, in public health there can be more information sharing on monitoring and surveillance, as well as coordinated contingency procedures. Better harmonization of health protocols for certain industries with cross-border operations would allow for risk-based continuous conduct of activities, and balance public health concerns with enhanced trade, investment, and travel.
2. Inclusive and sustainable economic policies to promote resilience
Further progress toward rules-based, open regionalism will promote cross-border trade, investment, and mobility as engines for recovery, while helping to drive inclusiveness and resilience. Efforts to strengthen regional trade regimes should be intensified and replicated, like the recently concluded Regional Comprehensive Economic Partnership, or potential expansion of the Comprehensive and Progressive Trans-Pacific Partnership Agreement.
Policy coordination is also needed to support regional trade and production networks to engage local businesses and create sustainable jobs and income for local communities. Research shows that small and medium-sized enterprises (SMEs) participating in global and regional supply chains maintain better access to finance and have fewer layoffs and closures during lockdown.
Supply chains with higher shares of SME participation also benefit from greater network resilience and flexibility. The SME-supporting measures should integrate gender dimensions to address pandemic-induced hardships on women, who across Asia and the Pacific have disproportionately suffered from reduced access to financial or digital services, or greater legal and cultural barriers in conducting businesses, and increased burden of unpaid care and domestic work.
Participation of SMEs in regional and global trade and investment can be further promoted with support for their digital transformation, improved access to finance, and effective trade facilitation. It can also be enhanced through trade-related technical regulatory coordination measures, such as mutual recognition of standards and regulations for medical equipment, supplies and vaccines, to facilitate regional trade in these essential goods.
There is also a strong case for regional coordination to support cross-border mobility for both business travel and tourism (short-term) and migration (long-term) to make economies more resilient and inclusive. Tourism, as one of the sectors hardest-hit by COVID-19, has seen widespread job and income losses, with women accounting for a larger share. Its revival hinges on regional or international arrangements like travel bubbles. Migrant workers, despite making significant contributions to the resilience of host economies, are among the most vulnerable to the pandemic’s impacts.
3. Uninterrupted access to quality national and cross-border infrastructure, including digital
The real economy still relies on efficient infrastructure, and COVID-19 has highlighted the importance of well-functioning digital infrastructure. It is crucial to continue investing in quality infrastructure, with efficient and resilient “software” including effective rules, regulations, and procedures (like trade facilitation), and reliable risk-based business continuity.
COVID-19 has also demonstrated the high cost of disruptions in infrastructure operations and services during crises. It highlighted the imperative to maintain operations to support the critical functions of the whole economy even when broader restrictions are in place.
In areas like digital infrastructure, there is a pressing need for more collaboration on communication protocols for data sharing, interoperability of systems, privacy and cybersecurity. This calls for a stronger role for the public sector, especially in adopting digital transformation and risk-based contingencies, as well as closer and more effective cooperation between the public and private sectors.
The private sector has pioneered technological adoption, but improvements are needed to ensure enabling regulatory frameworks are consistent across borders. Special attention should be paid to improving the physical and communications links to regional centres for poor, remote, and disadvantaged communities, so their livelihoods can benefit from regional economic and social networks.
What is the World Economic Forum doing on trade facilitation?
The Global Alliance for Trade Facilitation is a collaboration of international organisations, governments and businesses led by the Center for International Private Enterprise, the International Chamber of Commerce and the World Economic Forum, in cooperation with Gesellschaft für Internationale Zusammenarbeit.
It aims to help governments in developing and least developed countries implement the World Trade Organization’s Trade Facilitation Agreement by bringing together governments and businesses to identify opportunities to address delays and unnecessary red-tape at borders.
For example, in Colombia, the Alliance worked with the National Food and Drug Surveillance Institute and business to introduce a risk management system that can facilitate trade while protecting public health, cutting the average rate of physical inspections of food and beverages by 30% and delivering $8.8 million in savings for importers in the first 18 months of operation.
With the deployment of COVID-19 vaccines, hopes are growing that the world can soon recover from the pandemic. The prospects for Asia and the Pacific are bright, but the region should not be complacent. Its economies need to ensure their policies are well coordinated and implemented.
This will spur a faster and more inclusive recovery and build a region that is more resilient against future shocks.