THE pandemic will redesign globalization and could lead more firms to re-shore their operations, a move that may cause global trade to contract by as much as 22 percent, according to the Asian Development Bank (ADB).
In its Asian Economic Integration Report 2021, ADB projected that goods processing in global value chains may experience re-shoring to domestic markets as a result of Covid-19.
If 10 percent to 20 percent of goods processing are re-shored, this could lead to a global trade contraction of 13 percent to 22 percent. The most affected regions are Southeast Asia, which could see trade contract by 14 percent to 25 percent; followed by Central Asia at 13 percent to 23 percent, and the Pacific and Oceania, 12 percent to 21 percent.
“Southeast Asia and the Pacific and Oceania connect primarily with Asia’s value chain. The Asian economies most affected include Malaysia; Kazakhstan; Brunei Darussalam; Taipei, China; Singapore; Australia; Maldives; and the Republic of Korea,” the report stated.
Boon for PHL?
However, in a webinar on Wednesday, ADB Economic Research and Regional Cooperation Department Director for Regional Cooperation and Integration Cyn-Young Park said a post-pandemic world could benefit the Philippines.
Park said despite the partial re-shoring that is forecast to occur after the pandemic, the Philippines still has a competitive advantage, particularly in providing services.
She explained the post-pandemic trade landscape would place a premium on digital and services trade where the Philippines has a clear advantage.
“Even when they [Philippines] are not exporting, there’s also offshore call centers, they can provide the services from the Philippines to around the world,” Park said. “These [sectors] are really some of the potential areas to benefit from a different form of globalization, more digitally connected globalization post-Covid.”
Low value-added online jobs
Based on the report, ADB said the Philippines has a large share of online workers, particularly in the creative and multimedia space.
ADB data showed the Philippines accounts for 12 percent of global labor oversupply in at least one major platform. The potential workforce is estimated at 1.78 million; successful workers, 198,900; and the oversupply is 1.58 million.
Of these numbers, the potential workforce in the Philippines is at 221,000; successful workers, 32,800; and the oversupply could reach 188,300.
However, data also showed that 25 percent of online workers in the Philippines are doing clerical and data services. This is quite high compared to only 10 percent of workers doing the same kind of work in Bangladesh, India, Indonesia and Pakistan.
The data also showed only 14 percent of Filipino online workers perform tasks related to software development and technology. This is lower compared to workers in this space in India at 59 percent; Vietnam, 52 percent; and Pakistan, 45 percent.
“Although the Philippines has a large share of online workers in creative and multimedia, many are in jobs that have low value-added,” the report stated.
Disputes
Meanwhile, the report said the post-pandemic trade landscape would likely increase investor-state disputes and non-tariff measures, particularly on vaccines.
The report stated that while international investment agreements (IIAs) can help facilitate the foreign direct investment (FDI) flows, questions raised about IIAs have surfaced.
ADB said the increase in cross-border investment flows in the past 15 years has also increased the number of investor-state disputes (ISDs).
Data showed that before 2000, very few ISD cases involved Asian economies. However, based on the World Bank’s International Center for Settlement of International Disputes database, which covered a significant portion of ISDs worldwide, the numbers have steadily increased.
The report counted 673 cases globally, including ongoing and concluded cases, since 2003. Of this number, around 83 cases concerned Asian economies.
Disputes involving Asian states increased by 57 percent from 2000-2010 and 2011-2020. Most cases were concentrated in the oil, gas and mining, and electricity sectors.
According to the report, Covid-19 could trigger the increase of these ISDs. This should prompt international investment tribunals to review state measures to tackle the pandemic and call for a moratorium on treaty-based ISD arbitrations related to Covid-19.
“Provisions on expropriation could play a role in future Covid-19 disputes. Expropriation occurs when an investor can prove that the legal system has been changed in breach of a legitimate expectation the investor had at the time of making an investment,” the report stated.
“To better respond to a crisis such as Covid-19, Asian governments should continue strengthening provisions in their BITs [bilateral investment treaties] to ensure that they are flexible and balanced,” it added.
Meanwhile, ADB said non-tariff measures (NTMs) have significantly increased in Asia over the years, even before the onset of the Covid-19 pandemic. As of 2020, almost 12,000 NTMs have been imposed in Asia from just over 2,000 measures in 2000.
Trade curbs
As of August 24, 2020, ADB said Asian economies enacted 36.4 percent of Covid-19-related trade measures. More than half or 54.7 percent aim to restrict trade, while only 45.3 percent aim to liberalize trade.
Park said compared to 2019, there was an increase in NTMs imposed on medical supplies, but many of the new trade measures implemented across Asia sought to liberalize trade.
However, for certain goods, particularly food and other agricultural products, trade measures became more restrictive during the pandemic.
“Unfortunately, there were more restrictive measures imposed on food during the pandemic. A lot of these new measures suggested that we need to have a stronger international cooperation to facilitate the flow of critical, essential goods such as medical supplies and food and agricultural products,” Park said.
The report looked at Asia and the Pacific’s progress in regional cooperation and integration, and examines the initial impact of the pandemic on trade, cross-border investment, financial integration, and the movement of people.
The report noted that the region’s trade performance, while hit hard during the first half of 2020, is expected to recover faster than anticipated.
Asia’s merchandise trade volume growth hit bottom at -10.1 percent year-on-year in May, and has recovered gradually, turning into positive territory since September 2020. Investment flows globally and to the region are estimated to have fallen further in 2020, following a 7.7-percent slide in foreign direct investment to Asia in 2019 at $510.5 billion.
Governments in the region can leverage and reap the benefits of the emerging digital economy through policies and reforms to improve digital infrastructure and connectivity, as well as access to them.
These steps include promoting fair competition and improving ease-of-doing business processes, as well as enhancing labor security and social protection measures to align with digital jobs.
The report also emphasized the need to focus on data privacy and security, taxation, partnership between public and private institutions, and regional cooperation.