Could you tell us what the World Trade Forum is and how long it has been organised for?
We started the World Trade Forum in 2014 as a joint venture with the World Trade Institute at Bern University and the Global Economics team of the Global Governance Programme here at the Schuman Centre. The World Trade Forum has existed for longer than that, but it was mostly focused on international trade law prior to 2014. With the joint venture, the focus became more multidisciplinary and broader in scope, bringing together practitioners and researchers working on international investment, trade issues, and development.
This is an annual event, and EUI and WTI take turns hosting it. Last year, the conference took place in Florence and the topic was non-economic objectives in international trade. What was the focus this year in Bern?
This year, the focus was on geopolitics, geoeconomics, and the implications of deteriorating relations between the US and China for international trade and investment. There were a lot of discussions about re- and friend-shoring of trade, what firms are doing, how they are adjusting their supply chains, and what is happening with trade policy. Several sessions focused on the increasing use of unilateral intervention, notably industrial policies, by the big trading powers—the United States, China, and the European Union, and the implications of that for multilateral cooperation. There was also a focus on whether trade agreements are useful instruments for managing these tensions.
Earlier, you mentioned an important topic: re- and friend-shoring. Could you explain what the terms mean and what was discussed at the panel?
Friend-shoring and re-shoring are terms used to describe how firms are changing the way they organise their production networks, their supply chains. Reshoring is essentially bringing production back to ‘our shores’, that is, a reversal of decisions to outsource production to foreign countries. Friend-shoring means re-directing production to countries that are seen as friendly, where there is no worry about the so-called weaponisation of trade policies. If a country is highly dependent on exports to a country that decides to weaponise this dependence by suddenly blocking imports because of foreign policy, this is a big shock for the exporting firms who will incur large costs if they cannot rapidly find other buyers. China has taken such actions against Lithuania and Australia. A large country such as the United States may weaponise trade by prohibiting firms from exporting to a country for national security reasons. Firms realise that the world is becoming more uncertain, not just because of climate change or events such as the Suez Canal blockage, but also because of political use of trade measures that negatively impact their supply chains. They may adjust their supply chains accordingly.
There was a lot of discussion at the Forum on whether reshoring is actually happening. One interesting session featured presentations that were partly research-based and partly by practitioners. There’s been a narrative that there is not much evidence for total world trade falling. One reason for that is that firms are reallocating parts of their value chains —so instead of producing goods in China, they may move assembly to, say, Vietnam, but continue to source inputs from China. As a result of such reshuffling of production, overall trade volumes have declined less than bilateral trade between China and the US. However, if you dig deeper, several speakers presented evidence of significant declines in foreign direct investment, which if sustained will eventually lead to less international production, trade, and employment.
One point that was made at the conference is that the consequences of geopolitical tensions and pressures on firms to diversify their sourcing is creating problems for smaller companies in particular. Large firms can adjust more easily. A representative from a Swiss industry association of mechanical and electrical engineering firms noted that smaller firms often rely on specialised suppliers, and it is difficult to find alternative suppliers. Even if they can, the costs of doing so could make them uncompetitive, potentially leading to bankruptcies. In the end, there are real trade-offs between competitiveness and sustaining the ability of firms to become more productive and the policy desire to reduce dependence on China and bolster the resilience of supply chains. This was one of the key takeaways from the discussions.
Thank you. Is there anything else you’d like to highlight?
When Joe Francois and I started this joint venture, our original intention was to build bridges between the research community and practitioners. Over the years, we’ve increasingly seen that happen. This year, there were more people from international organisations than ever before. We had staff from the World Bank, the IMF, the OECD, the WTO, and UNCTAD. Some of these organisations are our partners in projects we are implementing at the Schuman Centre. It was great to see some of that work inform the discussions, but equally satisfying was to see alumni from both the WTI and EUI present research. I thought that was a real highlight—seeing the willingness of practitioners in the field to present their thinking and to engage with the research community on their research findings.
Moving on to your work here at the EUI, you recently won an ERC grant for a project called PIANO. Can you tell us more about it?
It’s a 5-year project, just starting now. It’s focused on plurilateral integration as an alternative to traditional trade agreements. One thing we’ve seen is that trade agreements are becoming harder to negotiate. The United States has become much less interested in trade agreements, and the European Union has also had difficulties, like with TTIP. The project explores how countries are pursuing cooperation without making formal commitments on market access. Instead, cooperation is happening in more issue-specific ways.
Most trade today is influenced by regulations—data privacy, safety, consumer protection, environmental rules—and these differ across countries, creating additional costs that inhibit trade. Firms are asking governments to help reduce such costs. Governments are responding, but increasingly not through traditional trade agreements. Instead, they’re forming partnerships around specific issues. For example, countries in East Asia are forming digital partnerships, and in Latin America, they’re working on trade facilitation by mutually recognising systems like authorised economic operators. These arrangements allow firms to move goods more efficiently across borders, as long as the firms meet certain standards.
And when you say trade agreements and cooperation, are they both plurilateral, or are trade agreements only bilateral while cooperation involves more actors?
That’s a good question. Most trade agreements with more than two members are plurilateral in the sense that they cover a group of countries. In the trade literature these are called preferential trade agreements, to distinguish them from multilateral WTO agreements that apply to all WTO members. In the project, the term ‘plurilateral’ refers to a group of countries working together without a trade agreement.
What will the impact of this project be, particularly in relation to geopolitics and trade?
There are two dimensions to its potential impact. First, from an academic or scientific perspective, the goal is to expand how we think about international cooperation beyond trade agreements. Secondly, from a policy perspective, I hope the findings will help policymakers understand when plurilateral cooperation can be an option—and perhaps a better one than traditional trade agreements – to help countries achieve a specific objective.
Bernard Hoekman is Director, Global Economics at the Global Governance Programme of the Robert Schuman Centre.
Take a look at the 2024 World Trade Forum photo album.
Watch a series of interviews with participants at the 2023 World Trade Forum.