Davos Agenda

To address inequalities we need a new vision for trade

Reforms to trade policy could have a meaningful impact on domestic economic inequality if a range of concrete steps are taken.

Image:  Etienne Girardet on Unsplash

Usman Ahmed
Head, Global Public Policy and Research, Paypal, Inc.
Aditi Sara Verghese
Policy Lead, World Economic Forum
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Davos Agenda

This article is part of: Sustainable Development Impact Summit
  • A new vision for the global trading system must encompass equitable access to the benefits of trade for all of society, and some nations have signalled support in this regard.
  • Reforms to trade policy could have a meaningful impact on domestic economic inequality if a range of concrete steps are taken.
  • The WTO, and trade policy and practice more generally, can be reframed to reflect the notion of economic justice, and the time to make this shift is now.

Divides and discrimination within countries along the lines of race, ethnicity, gender and Indigenous identity have resulted in longstanding social, economic and political challenges. The COVID-19 pandemic has further laid bare the stark inequalities among societal groups.

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Yet resistance and restorative action have spread too. Social movements for racial justice in the United States have inspired similar initiatives in other countries. The #MeToo movement spotlighted sexual abuse and harassment, and catalysed broader conversations about women’s participation in economic, social and political life. Meanwhile, some governments are coming to terms with their historical and current treatment of Indigenous peoples.

In this context, a new vision for the global trading system must encompass equitable access to the benefits of trade for all sections of society. This is an important aspect of building support for trade, as emerging research indicates that minority groups are often either negatively affected by trade shocks or do not have equitable access to the opportunities it provides.

Some countries have signalled support in this regard. For the first time, the US’s trade agenda includes the goal of racial equity. Canada, Chile and New Zealand signed a Global Trade and Gender Arrangement in August 2020. The relationship between trade and the rights of Indigenous peoples has been increasingly recognized in international economic agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Canada-United States-Mexico Agreement (CUSMA).

Image: Usman Ahmed and Aditi Sara Verghese (2021)

Understanding the problem

The effect of trade on inequalities between countries is well covered in economic literature. Differential trade impacts within countries among different income groups, between small and large firms, and on labour is well studied and discussed.

The effects of trade on different societal groups within countries – whether based on race, ethnicity, nationality, Indigenous identity or gender – has received less attention. This may be because domestic policies are considered the most direct way to tackle these inequalities. However, trade constitutes 58% of global GDP and is an important aspect of economic empowerment. And, while domestic policies can help with inequities created by trade if properly designed, reforms to trade policy could also have a meaningful impact on domestic economic inequality if a range of concrete steps are taken.

Developing and implementing inclusive policy

Better policymaking begins with better data. Governments should understand the industries that underserved populations are most likely to own and work in or rely on for inputs and final products. For instance, in 2016, minority-owned businesses represented 19% of US firms, but only 12.8% of US manufacturing firms. Governments should examine tariff lines to determine if they are discriminatory against those sectors that have a disproportionate representation of minority businesses and workers.

Underrepresented groups must be actively invited to participate in developing trade policy and negotiating positions. The advantages of such engagement were apparent in the provisions for Indigenous peoples in Canada’s trade agreements, for instance. New Zealand has carved out exceptions in their agreements to respect commitments made to Māori.

Trade agreements can also improve labour standards and remove discrimination against minority, migrant and female workers through labour chapters. These should include commitments by advanced economies to support and build capacity for the implementation of the necessary domestic reforms by trading partners.

Technical assistance and capacity building efforts that often accompany trade agreements must take into account equity considerations. Organizations should actively measure impacts of their initiatives on women and minority groups.

Inclusive trade in practice

Businesses also have an important role to play in enabling inclusive trade. Many have stepped up to publicly support movements for minority rights and inclusion. Investments in minority businesses can help raise the overall wellbeing of underserved communities. Supplier diversity programmes can support women-owned, minority-owned and Indigenous businesses to meet procurement standards, access financing and comply with export and import requirements.

Access to trade finance for micro-, small- and medium-sized enterprises (MSMEs) could result in major gains for those underrepresented groups and for the broader economy. The IFC estimates that 70% of women-owned formal MSMEs in developing countries are unserved (or underserved) by financial institutions, with an estimated funding gap of $285 billion.

New technologies and digitalization can also make trade more inclusive – whether by enabling MSMEs to connect and transact with international buyers, providing natural language processing for translation, or automating trade processes that might otherwise lend themselves to discriminatory practices.

Public-private partnership for economic inclusion

Active engagement by all stakeholders at all stages of the process – from research, consultation and policy development to implementation and capacity-building – will be essential in realising a truly inclusive approach to trade.

Businesses and civil society organizations have an opportunity to voice support for government action through the World Trade Organization on these issues in the runup to the 12th Ministerial Conference. Moreover, governments can work with the private sector and civil society organizations to create programs like trade finance guarantees targeting underserved populations.

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What is the World Economic Forum’s Sustainable Development Impact summit?

International trade has done yeoman’s work in lifting millions out of poverty, driving economic growth and encouraging economic integration that reduced incentives for armed conflict between nations. There are green shoots that make the current moment an ideal time for trade to address domestic socio-economic divides.

We believe that the World Trade Organization, and trade policy and practice more generally, can be reframed to reflect the notion of economic justice and that the time to make this shift is now.

Read the Global Future Council on Trade and Investment paper on “International Trade and Economic Justice” here.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Davos AgendaTrade and InvestmentInequality
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