A Retrospective on the Events that shaped International Trade in 2023

 

The year 2023 has emerged as a dynamic and transformative period in the arena of international trade, leaving a lasting impression on the global economic landscape. This article delves into the pivotal developments of 2023, from landmark trade agreements, environmental initiatives, and geopolitical shifts, culminating in a comprehensive overview of a year that has redefined international trade.

Quarter 1, 2023

 

Switzerland is the first WTO member to formally accept the new Agreement on Fisheries Subsidies

Switzerland became the WTO’s first member to ratify the Agreement on Fisheries Subsidies on January 20, 2023. The agreement forbids detrimental incentives for marine wild catch fishing and contributes to the Sustainable Development Goals of the United Nations. The Agreement on Fisheries Subsidies, adopted at the WTO’s 12th Ministerial Conference (MC12) in Geneva on June 12-17, 2022, establishes new binding, international standards to reduce damaging subsidies, which are a leading cause in the widespread depletion of the world’s fish supplies. Furthermore, the Agreement acknowledges the requirements of developing and least-developed countries (LDCs) and creates a Fund to provide technical support and capacity building to assist them in implementing the Agreement.[1]

IEC’s CEO Insights from June 2022 covers the key results of the MC12, including the Multilateral Agreement on Fisheries subsidies. Read it here.

Ongoing Russia-Ukraine War

The prognosis for the global economy has deteriorated due to Russia’s invasion of Ukraine, resulting in a humanitarian crisis in Eastern Europe and the introduction of sanctions to pressure Russia to stop hostilities. The conflict’s economic costs led to a major slowdown in the global economy in 2022, causing a crisis for global food supplies. The invasion resulted in a double-digit GDP loss for Ukraine and a recession in Russia, affecting vulnerable populations and threatening post-pandemic recovery. The World Bank predicts that economic activity in the Europe and Central Asia region will remain subdued this year due to Russia’s invasion of Ukraine, high inflation, and tighter financial conditions. Regional output is expected to grow by 1.4% in 2023, better than the previously anticipated 0.1%. However, inflation in the region is expected to rise to an average 2.7% over 2024-25 as inflation eases, domestic demand recovers, and the external environment improves. Ukraine’s economy is projected to grow by 0.5% this year, following a contraction of 29.2% in 2022. The cost of reconstruction and recovery in Ukraine has grown to US$ 411 billion.[2]

The halt in the grain trade between Ukraine and Africa following the Russia-Ukraine war raised concerns about food security and rising prices in African countries. Russia’s decision to withdraw from the Black Sea grain deal, which allowed the export of Ukrainian agricultural goods via a safe channel through the Black Sea, has impacted East African countries that relied on Ukrainian grain exports.[3] The end of the agreement could lead to rising consumer prices and strain farmers and aid organisations already struggling to respond to the impact of the halted trade. As a response, Russia has begun free shipments of grain to several African countries, including Burkina Faso, Somalia, Eritrea, Zimbabwe, Mali, and the Central African Republic.[4] This move is seen as a form of “grain diplomacy” to strengthen Russia’s influence in Africa. The implications of the halt in the grain trade are significant for food security in sub-Saharan Africa, as it could lead to reduced exports of wheat and other key commodities. The Black Sea grain deal was a crucial initiative in mitigating the impact of the global food crisis, and its suspension has raised concerns about the growing threat of hunger and high food prices in African, Middle Eastern, and Asian countries.

Trade and a ‘new globalisation’ emerge as key themes at Davos

Global leaders gathered in Davos in January 2023 for the World Economic Forum’s 53rd Annual Meeting centred on “Cooperation in a Fragmented World”. The Annual Meeting in Davos highlighted the importance of trade and investment, with global trade reaching a record volume of US$ 32 trillion in 2022. Despite inflation, supply chain issues, geopolitical shocks, and deglobalisation, participants urged governments and the private sector to collaborate and integrate the global economy for the benefit of all. They emphasised the importance of multilateralism and cooperation for prosperity, including boosting the green economy. They also highlighted the cost of global economic fragmentation and trends like “friendshoring” which could lead to inflation and reduced real GDP. [5]

IEC’s CEO Insights from February elaborates further the key messages to come out of Davos 2023 on the Future of Trade.

Quarter 2, 2023

 

UK formally accedes to the CPTPP[6]

After exiting the European Union in 2020, the UK has acceded to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), marking its largest trade agreement since Brexit. The UK’s exports to the eleven members of the CPTPP were valued at £60.5 billion (US$75 billion) in 2022. The agreement will reduce tariffs on food, drink, and automobiles and will, according to the government, boost the UK economy by £1.8 billion (US$2.25 billion) annually.[7] The CPTPP is a mega trade deal signed in 2018 by Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Collectively, the eleven CPTPP Parties represent a market of more than 500 million people, around 13 percent of the global GDP, and 15 percent of global trade.

The UK’s participation in the CPTPP is notably advantageous for its financial services sector. With an existing export volume of around US$ 40 billion in services to CPTPP member nations, the agreement’s focus on Cross-Border Trade in Services (CBTS) is of paramount importance. [8] By eliminating the ‘local presence’ requirement, the CPTPP provides UK service providers, especially in financial and professional services, with certainty and transparency, streamlining the cross-border supply of services. The Financial Services chapter within the CPTPP further ensures that UK firms can introduce innovative products and services, including cutting-edge fintech services, in CPTPP markets on an equal footing with domestic counterparts, fostering a competitive landscape.

The negotiations for the UK’s admission ended on March 31, 2023, when an agreement was achieved on the market access standards that the UK must meet. According to the Protocol of Accession, the UK will enter into force 60 days after all existing CPTPP members provide notice that their domestic ratification procedures have been completed. However, if at least six current CPTPP countries and the UK have completed their ratification processes by mid-October 2024, the Protocol will enter into force 60 days later, regardless of the ratification status of the other members.[9]

To read more on the benefits of the UK joining the CPTPP and the importance of the UK’s accession, see IEC’s article from June 2023.

EU new landmark deforestation regulation enters into force

The European Union’s pioneering Deforestation Regulation (EUDR), which entered into force on June 29, 2023, marks a significant stride towards combatting global deforestation. EUDR is a new regulation that aims to prevent products and commodities linked to deforestation and forest degradation from entering the EU market.[10] Encompassing seven crucial commodities and their derivatives – cattle, cocoa, coffee, oil palm, rubber, soya, and wood – the regulation mandates comprehensive due diligence by companies engaged in their trade. The rigorous scrutiny aims to ensure that products are free from recent deforestation or forest degradation, emphasising a commitment to sustainable and responsible supply chains. Non-compliance may lead to penalties, including fines and exclusion from public procurement. According to the EUDR, these fines must be reasonable and deterrent, with the maximum sanction being 4% of the non-compliant operator’s or trader’s entire yearly revenue within the EU. As companies navigate the evolving landscape, the regulation signals a transformative era in supply chain practices, urging proactive measures to meet heightened diligence requirements by December 30, 2024.[11]

IEC’s article from October 2023 highlights the European Union’s deforestation regulation and implications for Vietnam. Read more here.

AfCFTA Protocol on Investment

The adoption of the Protocol on Investment within the African Continental Free Trade Area Agreement (AfCFTA) on February 19, 2023, marks a significant milestone in reshaping the investment landscape across the continent. While the final text of the Protocol is not publicly available, a detailed analysis of the Draft Protocol offers insights into the anticipated scope of protection for investors and Member States. The AfCFTA, with 54 member states, has already become the world’s largest free trade area, fostering economic development through intra-African trade and investment. The Investment Protocol seeks to refine and harmonise the intricate web of current national, bilateral, and regional investment protection frameworks. Key provisions include a robust definition of covered investors and investments, granting them various protections such as equal treatment, non-arbitrary treatment, physical protection of investments, and the freedom to transfer funds. As the Protocol’s detailed provisions are still to be published[12], the successful implementation of the Protocol will be closely watched as it promises to shape the future of investment and economic development in Africa. [13]

Quarter 3, 2023

 

IFD Agreement

The WTO Members have concluded negotiations on the text of a Plurilateral Agreement on Investment Facilitation for Development (IFD), marking a significant step towards leveraging foreign direct investment for development. The agreement covers all sectors and aims to stimulate economic diversification, enhance transparency, simplify investment processes, and improve investor-administration relationships. IFD is seen as a vital framework for attracting investment in developing countries, as many countries have experienced poor investment levels due to risks, opportunities, complex processes, poor governance, and red tape.[14]

International Economics’ CEO Insights from August sheds light on the implications of the IFD agreement on the African continent. Read the article here.

UK’s Electronic Trade Documents Act

The UK’s Electronic Trade Documents Act went into effect in September 2023, giving paperless versions of documents such as bills of lading (BLs) the same legal standing as their physical counterparts. After decades of slow progress – only 2.1% of BLs and waybills were issued electronically in 2022 in containerised trade – the reforms have been hailed as a transformational opportunity to move away from paper, improve efficiency, and reduce costs. [15] Because of the large number of international shipping and trade contracts governed by English law, other jurisdictions are expected to follow. Commonwealth jurisdictions, in particular, are being encouraged to adopt digital trade to reduce trade costs and improve access to trade finance.[16] According to a Commonwealth report on the Quantitative Analysis of the Movement to Paperless Trade, digitalisation is predicted to increase the Commonwealth’s trade by US$1.2 trillion by 2026.[17]

IEC staff’s article for Mondaq sheds light on the UK’s Electronic Trade Documents Bill, read the article here.

Expansion of BRICS

The BRICS group of developing countries agreed on 24th August 2023 to admit[18] 6 new members: Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the United Arab Emirates. BRICS leaders left the door open to future enlargement by voting in favour of the bloc’s first expansion in 13 years, as dozens more countries expressed interest in joining the bloc. The expansion strengthens BRICS, which currently includes China, the world’s second-largest economy, as well as Brazil, Russia, India, and South Africa. The expansion was seen as a move to strengthen the alliance of the global south. The six new members will take office on January 1, 2024.

Paul Baker, CEO of International Economics Consulting Ltd. shares his views on the G20 Summit in South Africa and BRICS determination to destabilise the Dollar. Read the article here.

G20 Summit 2023 India

Previously an “invited international organisation,” the African Union (AU) was given full member status at the G20 Summit, which took place in Delhi, India. This puts the AU on par with the European Union, which is seated alongside 19 other nations, including the US, UK, and Russia. With the AfCFTA being the largest free trade area in the world and Africa being home to over 30% of the critical minerals required in energy transition technologies, the introduction of the AU into the G20 is expected to have a substantial impact on trade flows from the continent. [19]  Meanwhile, the G20 members account for three-quarters of world trade and roughly 85% of global GDP.

Other major highlights from the G20 summit held between 9-10 September 2023 include the announcement of an economic corridor connecting countries in the Middle East, South Asia, and Europe. The corridor would connect shipping ports, rail networks, and highways. The US and the World Bank both fund the massive infrastructure project.  Another notable highlight of the Summit was India’s announcement of the Global Biofuels Alliance initiative, which includes the US and Brazil as founding members. The idea is a significant step towards expanding G20 collaboration on sustainability and clean energy.[20]

Quarter 4, 2023

 

COP28: First-ever COP Trade Day

This year’s COP28 marked the first ever Trade Day at COP, a groundbreaking initiative, underscoring the pivotal role of international trade in advancing climate goals. The discussions emphasized how trade can propel technology transfers and foster global collaboration to achieve the ambitious 2030 climate targets. Delegates highlighted the potential of international trade to facilitate the dissemination of clean technologies and amplify investments in energy efficiency. Particularly significant is the role trade can play in decarbonising global value chains by curtailing “Scope 3”[21] emissions from suppliers. The event also spotlighted leveraging sustainable finance to infuse green practices into trade, addressing the environmental, social, and governance impacts. The WTO unveiled the “Trade Policy Tools for Climate Action,” a comprehensive guide covering ten policy areas to enhance the flow of climate-friendly goods and services, decarbonise supply chains, and bolster resilience to extreme weather events.[22]

CBAM in effect: World’s first carbon border tax enters into force in the EU

On October 1, 2023, the EU implemented its Carbon Border Adjustment Mechanism (CBAM), which is intended to equalise carbon costs for producers inside and outside the EU. The CBAM will initially apply to imports of goods with particularly carbon-intensive production processes, such as cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen.[23] Carbon Border Adjustment Mechanisms (CBAMs) are a type of levy in which countries impose an additional cost on imports to ensure that importers bear regulatory costs equivalent to those incurred by domestic producers in the production process.  Currently, importers are only required to gather and report the emissions produced during the production of the goods they purchase; but, as of the beginning of 2026, importers will also be required to disclose their annual purchases as well as their “embedded greenhouse gases,” and to submit enough CBAM certifications to cover the emissions.[24]

International Economics Policy Brief for the G20 India titled, Devising a Response to Carbon Border Adjustment Mechanisms for G20 Countries, explores the trade impacts arising for G20 economies in a scenario where CBAMs are adopted.

A decade of China’s Belt and Road Initiative

Over the past ten years, the Belt and Road Initiative (BRI), unveiled by Chinese President Xi Jinping in 2013, has evolved into one of the most ambitious and extensive infrastructure projects in modern history. Comprising the Silk Road Economic Belt and the 21st Century Maritime Silk Road, the BRI aims to enhance global trade and connectivity. With over 200 cooperation agreements signed with more than 150 countries and 30 international organizations, the initiative has witnessed significant progress in constructing railways, ports, highways, and digital infrastructure. One prominent achievement is the China-Pakistan Economic Corridor (CPEC), a trade corridor connecting Gwadar port in Pakistan to Kashgar in China, with investments exceeding US$ 60 billion. However, the BRI has faced criticism for lacking transparency and concerns about debt traps, prompting efforts to address environmental sustainability. With total spending surpassing US$ 1 trillion, the BRI remains a pivotal driver of global connectivity, though challenges persist in ensuring transparency and sustainability. [25]

First of its kind, the EU AI Act

In 2023, the adoption of artificial intelligence (AI) experienced a rapid and widespread surge across industries globally, with businesses increasingly integrating AI technologies to enhance efficiency, decision-making processes, and customer experiences. However, the growing use of AI has raised many concerns about its impact on fundamental rights and freedoms, prompting the EU to take significant steps to regulate AI.[26]

In a significant milestone, the European Council presidency and the European Parliament reached a provisional agreement on regulating EU’s use of AI in December 2023. This pioneering legislative initiative aims to establish harmonised rules ensuring the safety and adherence to fundamental rights and EU values for AI systems introduced to the European market and used within the EU. The AI Act defines the various actors involved in AI: providers, deployers, importers, distributors, and product manufacturers, which means that all parties involved in the development, usage, import, distribution, or manufacturing of AI models will be held accountable. Furthermore, the AI Act applies to providers and users of AI systems located outside of the EU, such as in Switzerland, if the system’s output is intended to be used in the EU. As the first of its kind globally, the EU AI Act has the potential to set a precedent for AI regulation worldwide, paralleling the impact of the General Data Protection Regulation (GDPR) on global data protection standards and showcasing the EU’s distinctive approach to technology regulation on the international stage.[27]

As we reflect on the transformative year of 2023 in international trade, characterized by historic events, there is an optimistic outlook for 2024. Despite geopolitical challenges, the global community has demonstrated resilience and commitment to sustainable trade practices, as evidenced by numerous initiatives like the EUDR and the AfCFTA Investment Protocol. The intersection of trade and climate action, exemplified by the COP28 meeting and the EU’s CBAM, highlighted the intersection of trade and sustainability, reinforcing the imperative for responsible economic practices. As we look ahead to 2024, the positive momentum generated by these transformative events positions us for a future where international trade continues to be a driving force for positive change, fostering economic growth, sustainability, and global cooperation.

In April 2023, International Economics Consulting (IEC) celebrated its tenth anniversary, making this an opportune time to reflect on the company’s achievements and global impact over the past decade. Since its establishment in April 2013, IEC has positioned itself as a leading consulting firm in international trade. With over 185 projects successfully implemented across more than 120 countries, IEC quickly earned a reputation for excellence and high-quality results. IEC expanded its global footprint with new offices opening in London in 2018 and Ho Chi Min City in 2021, allowing the company to be closer to key strategic markets and be more responsive to the needs of its clients. Read more on the company’s impacts over the past decade here.

CEO Insights is a monthly publication of International Economics Consulting Group (IEC). IEC is an independent consultancy group working with governments, international development partners, and the private sector to navigate trade opportunities and promote sustainable growth and development.  Learn more about the services that IEC provides here.

Paul Baker is the founder and chairman of International Economics Consulting Group (IEC), a globally recognised consulting firm. Nominated for seven consecutive years in Who’s Who Leading Trade Economists, he has advised several G7, G20 and G90 governments in developed and developing countries, an adviser on global corporate strategies to multinationals, and a Visiting Professor at the College of Europe. Paul is an expert in the Working Group of the World Economic Forum’s (WEF) Digital Flows Initiatives, an Expert in the WEF/WTO’s Trade Tech Working Group and is on the Board of the United Nations Economic and Social Commission for Asia Pacific’s Trade Intelligence tools. He is also a member of the UK’s All Party Parliamentary Group on Trade and Investment, and a regular contributor to the UK Parliament’s International Trade Select Committee, and UN panels on trade. 

 

References:

[1] WTO (2023). “Switzerland Is First WTO Member to Formally Accept New Agreement on Fisheries Subsidies”.

[2] World Bank (2023). “Russia’s Invasion of Ukraine and Cost-of-Living Crisis Dim Growth Prospects in Emerging Europe and Central Asia,” April 6, 2023.

[3] Neiman, S. (2023). “Concern Mounts in East Africa over Halted Black Sea Grain Deal.” Al Jazeera, July 21, 2023.

[4] Jazeera, Al. “Russia Sends First Free Grain to Africa since End of Black Sea Deal.” Al Jazeera, November 22, 2023.

[5] World Economic Forum (2023a). “Trade: 6 Things to Know about International Trade This Month,” February 2, 2023.

[6] Customs Support (2023). “World Trade News: August 2023 Edition.” Customs Support, n.d.

[7] World Economic Forum (2023b). “International Trade: What You Need to Know This Month,” April 27, 2023.

[8] See https://www.gov.uk/government/publications/cptpp-agreement-summary

[9] White & Case LLP (2023a). “UK Joins CPTPP and Opens Dialogue with Türkiye to Modernise Existing FTA,” International Law Firm, Global Law Practice. July 26, 2023.

[10] White & Case LLP (2023b). “10 Key Things to Know about the New EU Deforestation Regulation,” International Law Firm, Global Law Practice. July 21, 2023.

[11] Bellfield, H. et al. (2023). “Risk benchmarking for the EU deforestation regulation: Key principles and recommendations.  Policy Briefing. Trase and Proforest.” August. Available at:

[12] The Protocol is not publicly available ; however, the provisions of the final draft (“Draft Protocol”) are used to anticipate the extent of protection under the adopted Protocol.

[13] AU (2023). “The AfCFTA Investment Protocol – A Potential Game Changer for the African Continent? – AfCFTA.” AfCFTA, May 18, 2023.

[14] See WTO https://www.wto.org/english/tratop_e/invfac_public_e/invfac_e.htm

[15] Basquill, J (2023). “Analysis: As Pioneering UK Reforms Go Live, What’s next for Electronic Trade Documents?” Global Trade Review (GTR), October 2, 2023.

[16] Allingham, R; Elizabeth E; & Reema S. (2023). “UK’s Electronic Trade Documents Act Now in Force.” Lexology, October 23, 2023.

[17] Commonwealth Secretariat (2022). “Quantitative Analysis of the Move to Paperless Trade.”

[18] At present the 6 countries have been invited to join as full members from January 1, 2024.

[19] World Economic Forum (2023c). “International Trade: What You Need to Know This Month,” September 19, 2023.

[20] Edelman Global Advisory (2023). “G20 India Summit 2023 Highlights,” September 12, 2023.

[21] Scope 3 emissions are a category of greenhouse gas (GHG) emissions that come from business operations. They are indirect emissions that come from sources that an organization doesn’t directly own or control.

[22] Basquill, J (2023). “Analysis: As Pioneering UK Reforms Go Live, What’s next for Electronic Trade Documents?” Global Trade Review (GTR), October 2, 2023.

[23] Paul Baker et al., “Devising a Response to Carbon Border Adjustment Mechanisms for G20 Countries,” T20 Policy Brief, July 2023.

[24] World Economic Forum (2023) . “International Trade: What You Need to Know This Month,” October 11, 2023.

[25]  World Economic Forum (2023). “China’s Belt and Road Initiative Turns 10. Here’s What to Know,” November 20, 2023.

[26] Sathe, M, & Karl R. (2023). “The EU AI Act: What It Means for Your Business.” EY – Switzerland, July 28, 2023.

[27] See European Council https://www.consilium.europa.eu/en/press/press-releases/2023/12/09/artificial-intelligence-act-council-and-parliament-strike-a-deal-on-the-first-worldwide-rules-for-ai/

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