Our global trade system impacts nearly every person on the planet and has lifted more than a billion people out of poverty. The system is underpinned by multilateral trade agreements that cover a wide range of economic activities ranging from agriculture to industrial standards. Yet the system’s effectiveness is being challenged on two fronts.
First, the war in the Ukraine, trade tensions between China and the United States (the two largest economies in the world) and rising global oil prices point to greater geopolitical fragmentation. Without political consensus, the work of key trade bodies such as the World Trade Organization (WTO), UN Conference on Trade and Development (UNCTAD), and International Trade Centre (ITC) will become more challenging, particularly if there is a global recession.
Second, the trade system has been relatively silent on what it can do to address two global challenges that threaten both people’s livelihood and the planet’s health. The twin crises of climate change and biodiversity loss are certain to reshape our global trade system. Research shows that humans have now crossed six of our nine ‘Planetary Boundaries’ – the limits which define a ‘safe operating space’ within which humanity can thrive. Against this backdrop, there is a growing consensus that the current trade system is not living up to its full potential in the drive towards more sustainable growth.
How can we harness trade as a force for good, and harness its potential as a vital lever to help us achieve the UN Sustainable Development Goals (SDGs)? These were the key questions posed in Villars, during a three-day High-Level Summit on Remaking the Global Trading System for a Sustainable Future, jointly hosted by the Remaking Trade for a Sustainable Future Project and the Villars Institute Foundation.
Why we need to remake trade as an instrument for change
Over time, our trade system has evolved to include global supply chains and a sophisticated system of rules and regulations - all designed to keep the flow of goods and services across the world as smooth as possible.
However, by taking only a narrow view, and focusing on making sure that trade flows without obstacles, we have neglected its vital importance in helping to shape a more sustainable and equitable future. By reimagining trade, we have a crucial opportunity to unlock its potential as we take on the most pressing challenges of our time: tackling global warming and harmful greenhouse gas emissions (GHGs); finding ways for humanity to live within the nine Planetary Boundaries; and building a more inclusive, equitable, people-centered future.
Such complex, interconnected problems demand Systems Thinking. Trade does not exist in isolation, and no single country or organization can do this work alone. Meaningful change requires a new narrative that will encourage us to collaborate across disciplines and consider the broadest range of voices as we build a trade system that is fit for purpose in the 21st century.
A new narrative: the Villars Framework
Under the auspices of the Villars Institute, the Remaking Global Trade for a Sustainable Future Project has proposed a series of recommendations: the Villars Framework for a Sustainable Trading System. The three-day summit in Villars brought together leaders, policy makers and talented young people, sharing insights on how to revitalize the trade system to make it more sustainable, people-focused, effective, inclusive, transparent, and digital. The Summary report is available here. We have highlighted below three of key recommendations necessary to accelerate the transition to a net zero and nature positive global economy.
One of the key findings set out within the Villars Framework is the need for a commitment to net-zero greenhouse gas (GHG) emissions in international trade by 2050. This aims to make sure that any enterprise engaging in cross-border trade achieves net zero across its entire value chain - from raw materials, through production, shipping and distribution to use and end-of-life disposal of goods.
Another ambitious recommendation focuses on agreeing foundations for rigorous, science-driven border adjustment mechanisms. This guidance aims to address a crucial global challenge: how to internalize negative environmental externalities, ensuring that entities whose trade activity has a negative impact on the planet build those costs into their internal accounting. These measures affect everything from the measurement of embedded GHG emissions and gauging the equivalence of climate policies, to new mechanisms for ensuring equity in the transition to a clean energy future.
The Framework also proposes a restructuring of WTO subsidies: moving away from the present focus on whether subsidies are distorting trade, and towards a system of subsidies which contribute to the Sustainable Development Goals. In parallel, new modes of negotiation to reflect the nature of global public goods beyond a purely mercantilist approach - would also help facilitate a paradigm shift in trade relations.
A trade system reimagined around the SDGs should also include a more inclusive process for setting shared sustainability standards for traded goods and consider a ‘sustainable goods’ initiative which would help clear the way for the resilient green supply chains of the future. Measures to ensure that developing countries can thrive in a sustainable development-oriented trade system are also essential if the benefits of our future trade system are to be enjoyed by all.
An unprecedented opportunity for systems leadership
For millions, globalized trade has led to greater prosperity. But for many it has also fallen short of its promise, as a driver of sustainable, inclusive, and equitable growth. We need systems leadership. By sparking the right conversations in a unique collaborative spirit, the Villars Framework is inspiring fresh insights and systems thinking. Through this ambitious initiative, we can turn challenges into opportunities, and reimagine the trade system with sustainability at its heart.