Those who believe that economic integration is key for global recovery must work together to counter protectionism, Trade and Industry Minister Chan Chun Sing said yesterday.
Speaking at a virtual conference organised by the South China Morning Post, Mr Chan said the rules-based global economic order that has benefited countries large and small faces profound challenges, including geopolitical tensions, fiscal strain and widening income disparities both within and between countries.
He said these challenges will persist far beyond the Covid-19 pandemic, which, on its own, has further accentuated protectionist tendencies by aggravating the fiscal stress in many economies.
"Trade tensions as well as politically induced reordering of the global production and supply chains are all detrimental to the proper functioning of our global economic system," he said.
Meanwhile, the World Trade Organisation (WTO) is in a state of paralysis, the minister added.
Established in 1995 as a successor to the General Agreement on Tariffs and Trade, the 159-member WTO has come under fire for its inability to enforce rules of the multilateral trading system or to reform and remain relevant to new trade and economic issues such as the digital economy, investment, competition, the environment and climate change.
Repeated attempts to revive the Doha round of negotiations that started in 2001 to lower trade tariffs worldwide have failed.
The WTO's appellate body, which adjudicates trade disputes among member countries, effectively ceased functioning in December last year amid disagreements regarding the appointment of new judges to the panel.
Singapore is part of the Canada-led Ottawa Group of WTO members committed to achieving meaningful, realistic and pragmatic reforms at the WTO over the short, medium and long terms.
Mr Chan said the Covid-19-driven fiscal strain risks the increasing use of beggar-thy-neighbour exchange rate policies, as well as unsustainable fiscal and monetary policies. It has also greatly intensified the global competition for tax revenue.
"To protect domestic revenues, some governments around the world are aggressively pursuing mercantilist policies, including pressurising companies to reshore," he said.
The reshoring and nearshoring trend has intensified since the start of the trade war in July 2018 between the United States and China, with many companies looking to relocate their businesses and factories back home or to jurisdictions near the target market where they can avoid tariffs and potential sanctions compliance issues.
Mr Chan said international tax policy developments such as the base erosion and profit shifting (BEPS) 2.0 initiative will also impact the way countries compete, where investments go and affect how corporate profits are allocated and taxed.
BEPS refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax. BEPS 2.0 is aimed at addressing the tax challenges arising from increasing digitalisation of the global economy.
Mr Chan also mentioned the data localisation policies - restrictions or practices affecting cross-border data flows, digital products, Internet-enabled services and other restrictive technology requirements - being pursued by some countries.
"Digital trade barriers are another example of such policies, as governments erect walls to keep data and its benefits, including monetary ones, within the country," he said.
At the same time, new technologies and disruptive business models are accentuating the gap between the disruptors and the disrupted, he added.
"As countries, companies and workers experience unequal effects from the geo-economic disruptions, the dispersion of growth, corporate earnings and wages will grow. A fragmented global economy will exacerbate the inequality of opportunities between the haves and the have-nots."
Amid widening disparities, people will question the benefits of globalisation giving rise to protectionist tendencies, he said.
Mr Chan said that to resist the siren call of anti-globalisation policies, countries must band together and commit to upholding and strengthening the global trading system.
Countries must also work together to improve cross-border digital integration by negotiating economic agreements in forward-looking areas such as data, finance and technology, he added.
He said that to reinforce its position as a business hub, Singapore is working closely with like-minded international partners to improve physical and digital connectivity.
Examples of such efforts include digital economy agreements signed with Australia, Chile and New Zealand, as well as agreements to improve access to trade financing, such as the one signed with the US in December, he said.