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Will COVID-19 advance sustainable trade?

For trade to be sustainable, it must not only generate balanced economic growth but also strengthen social capital and promote environmental stewardship. These three pillars of sustainability -- economic, social, and environmental – were first laid out by the UN Brundtland Commission in 1986, and also form the basis for the Hinrich Foundation Sustainable Trade Index. The index recognizes that although trade is an essential ingredient in economic development, it cannot be sustainably pursued without an equivalent commitment to social capital and the environment.

While it is too early to draw any definitive conclusions about what impact the COVID pandemic will ultimately have on sustainability in international trade, preliminary indications provide reason for both pessimism and optimism.

Reasons for concern

The economic distress caused by the pandemic has heightened the temptation for countries to try to take “short cuts” to attract investment and jobs by reducing labour and environmental standards. Of course, such policies are shortsighted and will always backfire in the long run. However, we are already seeing countries succumb to the temptation.

In India, for example, several states including Uttar Pradesh, Madhya Pradesh, Rajasthan and Gujarat have amended legislation to provide labour law exemptions on issues including working hours and safety inspections. These exemptions apply both to existing businesses and new businesses being established, presumably as an added inducement to set up facilities in India.

Indonesia meanwhile is back-tracking on efforts to curtail rampant illegal logging. Exporters are no longer required to obtain licenses verifying that their timber and finished wood products come from legal sources. These licenses had helped reassure importers that their Indonesian timber purchases were being harvested in sustainable ways.

The retreat in sustainability standards is not only a developing world phenomenon. In response to the COVID-19 driven economic slowdown, the Trump Administration has moved to weaken environmental protections.  Environmental reviews are no longer required for infrastructure projects undertaken during the pandemic, and the Environmental Protection Agency will now have greater latitude to weaken air pollution and climate change regulations based on economic factors.

We are also seeing an unfortunate increase in the use of plastics, as more people are forced to rely on home delivery for their meals, and supermarkets increasingly wrap individual vegetables or fruits for hygienic purposes. And of course, the drop off in economic activity has weakened demand for oil, leading to lower oil prices and undercutting the economic viability of renewable energy.

Beyond labour and environmental issues, another essential ingredient in sustainable trade is the reduction of trade barriers.  In response to the pandemic however we have seen an uptick in export restrictions.  In fact, Global Trade Alert reports that roughly 90 countries have imposed restrictions on the export of medical supplies, while 29 have done the same for food exports. 

The case for optimism

While these are all distressing indicators for sustainable trade, there are also reasons for optimism.  As a result of pandemic lockdowns, it is estimated that CO2 emissions, for example, could drop by 8 per cent in 2020 – the sharpest drop in modern history.  Obviously of course, as economic activity resumes, emissions will once again increase, potentially to pre-pandemic levels.   But a number of positive and consequential COVID-19-driven changes are likely to endure.

The pandemic is forcing companies, organizations, government departments, and schools to rethink how they conduct operations. Tele-commuting and virtual meetings or conferences are now the new normal, and we’ve learned that they can actually offer advantages over traditional face to face interaction.  When restrictions on travel and gatherings are eventually eased, many of the activities which were initially forced online will remain with online formats out of preference or simple inertia.   For at least some portion of our tasks, remote working is likely to be permanent.  And when the workday is done, a report by Bain and Company suggests that more of us will continue to turn to home-centered consumption and online buying, rather than venturing out. 

The net effect of these changes is that we will have less reason to get into cars, buses, trains, or airplanes to live, work, and study.  The precise impact on sustainability remains to be seen, but it’s already clear: there will be no return to the previous normal.

“Build back better”: societal shifts and political pressure

Perhaps more importantly over the longer term, the COVID-19 experience could also contribute to a broader societal shift towards a more sustainable mindset.  In heavily polluted cities from Asia to the Americas, people are being reminded what blue skies actually look like. How willing will they be to go back into the haze?  We know from experience that once civil society tolerance levels for pollution begin to erode, more responsible environmental policies frequently follow. 

Political pressure is already being brought to bear.  The International Energy Agency, the World Resources Institute, Greenpeace, and other organizations are pressing governments to build greater sustainability into the massive COVID-19 stimulus packages that are being deployed.  In many instances, corporate funding is conditional on commitments to reduce emissions or implement other environmentally responsible policies.  In fact, governments are actively seeking NGO advice on how to structure stimulus programs to embed greater sustainability.  The watchword seems to be “build back better”.

Taken in their totality, the enduring changes to the way people work and live, along with a catalyzed public policy commitment towards sustainability, should deliver some environmental dividend.  

Diversifying trade

The pandemic has also shone a spotlight on the unsustainability of being overly reliant on one — or a limited number — of trade partners. This has taken on the greatest urgency in medical supplies, but even in industries that don’t hold life or death consequences, we’ve seen that supply interruptions in intermediary goods in one country can shut down major production facilities in another.

As a consequence, companies and countries are making a concerted effort to diversify trade relationships. This is good news because as trade becomes more diversified, it is more sustainable.

A golden opportunity

While the pandemic feels as if it has dragged on interminably, we are still in the early days of being able to assess its long-term impact on sustainable trade. At least thus far, it appears to be a sword that cuts both ways. But as the transition to a post-pandemic new normal continues, we are presented with a golden opportunity to build greater sustainability into international trade.  

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