How to Strengthen the Multilateral System and Shape Resilient Supply Chains?

The B7 remains committed to an open, free and fair trade agenda. The Russian invasion in Ukraine and the wider supply chain disruptions have shown more than ever the importance of a fully functioning global trading system – a system which delivers growth and prosperity for all. The role of the WTO will increase in importance as the world seeks to ensure greater supply chain resilience. We need to maintain a level playing field, ensure any imposed trade barriers are WTO-compliant and reduce friction in the global trading system wherever possible. The G7 must strategically counteract the international trend toward protectionism and continue supporting and promoting the market access agenda.

Achieving concrete outcomes at the plurilateral level is key. The Joint Statement Initiatives on e-commerce, investment facilitation for development and MSMEs should be prioritized. It is imperative for plurilateral initiatives at the WTO to be as inclusive as possible. The G7 should encourage other Members, particularly those from emerging economies to join, and play an active role in the JSIs. The G7 must also urgently work toward a solution on the WTO Appellate Body crisis. The absence of an effective Appellate Body does not disincentivize protectionism and the increase of unjust trade barriers that cause retaliatory actions. This not only endangers economic growth and resilience but will increase already tense geopolitical challenges.

The G7 should put considerable weight behind reforming and retooling the Agreement on Subsidies and Countervailing Measures. The G7 should set forth a work plan addressing special and differential treatment and industrial subsidies. Here, it is key that the G7 emphasizes that members should undertake commitments in the WTO according to their economic weight, capacities, and competitiveness.

Resilient Supply Chains

The current war in Ukraine and the resulting sanctions are causing significant supply chain disruptions, including in energy, raw materials, logistics and transportation. New bottlenecks have been formed and with maritime transport not being available anymore and road and rail networks being used at full capacity, queues are long, risking delays in the delivery of commodities and other goods. These disruptions only threaten to exacerbate unprecedented shocks in both supply and demand along global supply chains brought on by the Covid-19 crisis. OECD empirical analysis suggests that reshoring and localization of supply chains is associated with high efficiency costs and is not typically feasible. The G7 have a key role to play in sending a strong signal against forced reshoring and in favor of diversified, resilient supply chains bolstered by open markets. Here, collaboration with the private sector in several areas can be incredibly beneficial.

The B7 advocates for diversifying sourcing within supply chains to build resilience and to ensure that the G7 are less strategically dependent on single nations or suppliers. Diversification should especially be pursued among countries that do uphold their core values of democracy, freedom, equality, the rule or law, and respect for human rights, or those that do not violate international law. Business is willing and prepared to stand with government and to support them in this endeavor.

In order to combat global food security, to tackle the sharp rise in commodity prices and to avoid further humanitarian disasters, coordinated action is required by G7 governments in avoiding export restrictions on agricultural products and resist food protectionism in the aggregate. G7-specific cooperation on supply chains based on deeper and more diverse international markets goes hand-in-hand with greater reforms at the WTO, including taking the lead in rebuilding trust in the multilateral system and strengthening enforcement of notification rules.

The B7 encourages supply resilience within the G7 based on transparency, in particular through visibility of demand and supply forecasts to enable faster risk identification and better risk mitigation. A resilient supply chain should be based on trust, collaboration, responsiveness, infrastructure and tools capacities, visibility, data accuracy and timeliness, and the coverage of the delivery network. The G7 should work more closely with the private sector to achieve resilience and to undertake a more accurate analysis of the consequences of different potential policies and to promote supply chain resilience and diversification. Logistical bottlenecks may be further eased by allowing trading hubs such as ports to be better equipped to support distortions.

Securitization of Trade Policy

B7 rejects industrially motivated encroachments on private property and freedom of contract that go beyond the protection of public security. The overall competitiveness and innovative strength of G7 industry is mainly based on the protection of private property and freedom of contract – not on state protection of certain technologies. It is additionally important to adapt the legal framework of the G7 countries to become more resistant within an intensifying systemic competition with non-liberal systems. Such adjustments must be made across all areas of law and must not be limited to investment screenings for foreign investors.

We live in an age when security concerns, trade, and technology are increasingly intertwined, and governments around the world are turning to export controls more often. It is the shared responsibility of G7 members to work together in a plurilateral fashion to craft export control approaches that avoid unnecessary disruptions to trade and protectionism among allies while addressing national security concerns. Each G7 country should increase coordination with allies and partners to adopt the least trade restrictive and narrowly targeted export controls for the most sensitive technologies. We welcome an export control policy in the sense of balanced and targeted protection measures and caution countries against export control policies that veer beyond national security concerns. Applying export controls to too broad a set of commodity items and technologies will undermine private sector innovation and competitiveness – the very pillars from which national security can be improved.

The B7 calls for resolute political action in the further opening of foreign markets and asks the G7 countries to set a good example by limiting the use of restrictions. The conclusion of free trade and investment agreements, a strong WTO, and development of better global governance and more effective than establishing new hurdles for investors. Inward investment screening should not be motivated by considerations of industrial policy and should remain a limited instrument to protect national security and public order of the G7 countries. The G7 should commit to work on a more transparent and precise definition of “national security and order” in the context of foreign direct investment to increase legal certainty for global investment.

The B7 calls on the G7 leaders to commit to greater cooperation in the development of sensitive technologies. An elaborate set of incentives will be crucial precondition to boost investment in research and development by companies and research institutions alike. G7 leaders should do their utmost to streamline existing national export control policies to limit the burden that businesses carry when active in several G7 jurisdictions while also protecting national security. The challenge to the liberal, rules-based order requires policy answers that interfere with the openness within which a globalized economy would ideally work. The B7 anticipates a well-balanced approach to this issue by G7 leaders.