Is the COVID-19 crisis an opportunity for fairer global trade?

Foreign buyers inspect denim samples at a stand during a textile fair organised by the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). [EPA | Abir Abdullah]

The coronavirus pandemic clearly shows the uncertainties of globalisation, as global value chains have been particularly impacted by the pandemic. Could a European supply chain law be an answer to the current challenges? EURACTIV Germany reports.

While Germany is not the only country to feel the impact of the coronavirus pandemic on global value chains, these days, the German government is often talking about wanting to bring back the production of “system-critical goods”.

Economy Minister Peter Altmaier (CDU) announced at the start of April that the government wants to become more independent, especially in the production of protective equipment.

German MEP Bernd Lange  (SPD), who chairs the European Parliament’s Committee on International Trade (INTA), stated that “we are experiencing a change [in] globalisation, which is why trade policy must also change”.

Lange thinks the existing value chains should be restructured.

“At the moment, value chains are being geared primarily to the criteria of efficiency and cost pressure,” he told reporters on Wednesday (29 April). “But above all, they must be designed in a fair and sustainable manner.”

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Developing countries as major losers of the crisis

The economic impact of the coronavirus is hitting the Global South particularly hard. Not only have the emerging markets been experiencing record capital outflows since the beginning of the year, but international financial and trade organisations are also expecting an enormous decline in foreign investment.

Bangladesh, Pakistan and Ethiopia have seen large waves of redundancies because many factories have stopped work after numerous orders were cancelled in various sectors.

To ease the burden on the economies of developing countries, the heads of state and government of the G20 group agreed in mid-April to defer all interest and redemption payments from May onwards until the end of the year.

In addition, the EU has suspended customs duties and VAT on certain medical products. “This measure should be the basis for a more far-reaching model of duty and VAT exemption, especially for developing countries,” Lange stressed.

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Renationalising supply chains is not a solution

According to Lange, the emerging markets’ dependence on investments by industrialised countries shows that a wholesale renationalisation of supply chains is not the answer to the current situation. “Robust supply chains always mean investments,” he said.

In individual cases, however, he argued that the shortening and relocation of supply chains, including to the EU, is possible, provided that such a fanning out of value chains is carried out in clear compliance with World Trade Organisation rules.

It is also important that there are always two options for the supply of key parts.

Lange ruled out a decoupling from China when it comes to the production of goods. “If we focus only on reshoring to the EU, it is easy to calculate what supplier parts will cost, for example”.

Nevertheless, it is to be expected that China will become significantly less attractive as a production location during the pandemic, Lange wrote in a position paper on trade policy published on 28 April. This transition could particularly benefit the countries of the Eastern and Southern Partnerships.

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The European Parliament wants to get supply chain legislation underway

The legislation on corporate due diligence through the supply chain (“supply chain law”) is set to come into force next year, EU Commissioner Didier Reynders announced on Wednesday (29 April) during a webinar of the European Parliament’s Responsible Business Working Group.

MEP Anna Cavazzini, a trade policy spokeswoman for the Greens/EFA, called this “a breakthrough for the worldwide implementation of human rights and a fairer globalisation. The law will oblige companies along the entire supply chain to comply with environmental and human rights standards”.

“It can improve the lives of millions of workers, indigenous peoples and environmental activists around the world. The COVID-19 crisis once again demonstrates the urgent need for European legislation on corporate due diligence,” she added.

Lange, who sees a European supply chain law as a means to ensure sustainability and strengthen the resilience of value chains, estimated that the Parliament will present a proposal for the law at the start of next year at the latest. He is certain that “the coronavirus pandemic will not end globalisation. But we have the opportunity to make it better and fairer.”

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[Edited by Zoran Radosavljevic]

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