Remarks by Angel Gurría
18 June 2020 - Paris, OECD
(As prepared for delivery)
Minister Sung, Colleagues, Ladies and Gentlemen,
It is my pleasure to join you today for this joint conference on Industry and Trade in the post-COVID-19 era. I would like to thank the Government of Korea, and in particular, the Minister of Trade, Industry and Energy, Mr. Sung Yun-mo, for co-hosting this important meeting.
We are living in unprecedented times. The latest OECD Economic Outlook, released only last week, paints a grim picture. The 6% annual decline in global GDP that we project for 2020 is far bigger than any other decline in the 60 years of the OECD’s existence. In addition, global trade volumes, which were already stagnating when the outbreak began, are expected to contract by about 10% this year, similar to 2009.
And this is the “upbeat” scenario without a second wave of infections. In the case of a “double hit” scenario, global GDP could decline by more than 7.5%, with 40 million additional people being unemployed in the OECD by December 2020.
In this context, industry and trade have an important role to play. In this interconnected world, we must ensure that global value chains (GVCs) stay functioning, support our health response, and act as motors of the recovery of our economies.
COVID-19 has placed unprecedented stress on domestic and global supply chains. GVCs are essential: No country is able to produce alone all the goods needed to fight the global health crisis. Countries are often both importers and exporters of essential products – from test-kits and protective garments, to medical devices, and disinfectants. For example, for every euro of COVID-19 goods that Germany exports, it imports 72 cents worth of COVID-19 goods. Similarly, Korea exports 80 won worth of COVID-19 goods for every 100 won of COVID-goods it imports.
The effects of demand shocks and shutdowns are being felt globally. Many countries initially faced serious short-term shortages of essential medical goods, and many also imposed export restrictions. This has led to wider discussions about whether it would be safer to produce more at home, reigniting an old debate over global integration. However, we have evidence to show that localising or “onshoring” production would in fact leave countries more vulnerable. Supply chains would become more concentrated and less resilient, and economies less adaptable in the face of shocks.
The current situation therefore highlights that GVCs can be an important part of building resilience, and can help to speed up the recovery.
We have witnessed the agility of GVCs to adjust and adapt when necessary. For example, when global demand for facemasks outstripped global production, countries worldwide faced shortages – including main producers, like China. Yet, both global production and trade in facemasks increased more than tenfold to match these needs.
Moreover, GVCs are a key driver of innovation. In less than three months, Korea has become one of the main exporters of COVID-19 test kits, drawing from the innovation capacity of its export-oriented firms and exporting to over 100 countries.
Looking ahead, there are a number of areas where industry and trade can learn from the experience of the crisis to help support and speed up the recovery.
Future risk management strategies at the firm level should focus on risk awareness, greater transparency, and more agility. Sourcing strategies should consider levels of acceptable risk. In some cases, recovering quickly is sufficient, but in others, greater supplier diversification and buffer stocks may be needed to keep production running and goods flowing.
In addition, it is thanks to digital tools that our economies and societies are avoiding a complete standstill. Korea has been at the forefront of digitalisation, improving the effectiveness of front-line responses with the early adoption of its “Self-quarantine Safety App” to help track and trace the spread of the virus. Artificial Intelligence is also playing a key role in every aspect of the crisis response, from accelerating medical research on drugs and treatments to monitoring the recovery and improving early warning tools. Ensuring a human-centric and trust-worthy approach to the use of these digital tools is crucial as enshrined in the OECD Principles on AI.
Governments can also provide the frameworks and incentives for investment in a low carbon future, including by reforming their own environmentally harmful subsidies and encouraging innovation and the circular economy. The OECD is bringing expertise from across the house to help design the policy agenda for the low carbon transition.
And governments can provide an environment that supports firms in building more resilient and robust GVCs. They can collect and share information on potential supply chain concentration and bottlenecks, and develop stress tests for essential supply chains. They can also reduce policy uncertainty through regulatory transparency, by updating WTO rules for digital trade, and by ensuring the open and well-functioning global markets that will help create opportunities for supplier diversification.
Last but not least, the OECD is already helping governments improve their understanding of GVCs and their regulatory environment through our Trade In Value Added (or TiVA) database, our Services Trade Restrictiveness Index and Trade Facilitation Indicators. We very much hope this work can contribute to the understanding that trade is not a zero-sum game and that it can help the de-escalation of the trade tensions that have been damaging trade, investment and growth in the pre-COVID-19 period.
I have said it in several fora and interviews, and I want to conclude with this: the last thing we need at this delicate moment for the world economy is another escalation of protectionist measures and trade tensions.
Minister Sung, Ladies and Gentlemen,
Every major crisis brings the opportunity to rethink our systems and make them more resilient to future shocks. The current crisis is no exception. Global interconnectedness, robust GVCs and resilient trade are essential to overcome the pandemic.
You can count on the OECD work with you and to support this work as together we chart a path towards a cleaner, fairer, resilient and sustainable economic recovery. Thank you.