Deputy Director-General Jean-Marie Paugam spoke at the Vine and Wine World Trade Forum in Dijon, France, on October 3rd, emphasizing the significance of bolstering the multilateral trading system, particularly embodied in the World Trade Organization (WTO), to address the challenges presented by the evolving landscape of global trade. Paugam highlighted the emergence of a new trade narrative rooted in geopolitics, climate considerations, sustainability, and quality-related regulations, which has led to some degree of trade fragmentation. He asserted that the solution to confront these challenges lies in reinforcing, rather than diminishing, the multilateral trading system. His address is summarized below.
The Forum’s central question, “What future for the international trade of vine and wine products?” directly resonates with ongoing discussions at international trade institutions, notably the WTO. It prompts us to contemplate whether we are witnessing the dawn of “reglobalization” or a new era marked by deglobalization.
This question holds significant implications for wine and vine producers. The State of Wine report highlights a noteworthy trend, with the overall value of global wine exports reaching record highs. Over the past two decades, international wine trade has more than doubled, expanding from 20% to 41% of total production. This evolution has seen the rise of regions like California, Australia, South Africa, and Chile as strong competitors alongside established European wine-producing nations.
In light of these developments, it is essential to make sense of the transformations in global trade, understand their impact on businesses, and consider potential solutions.
Previously, it was emphasized that while a new narrative of trade policies advocating for decoupling, derisking, and deglobalization was being discussed, the actual data showed little evidence of such trends. Today, the message is slightly amended: we are now beginning to see elements of this new narrative manifest in reality.
First and foremost, it should be clarified that trade is not diminishing but evolving. Talks of deglobalization must be substantiated by data. In recent years, the share of trade in global GDP has remained relatively stable at around 50-55%. Sectoral effects, such as the increasing prominence of services that are less traded within GDP, have contributed to this pattern. Even amid the trade war between China and the US, global trade has continued to expand. Notably, world trade exhibited resilience after the initial shock of the COVID-19 pandemic. In essence, global trade is enduring, and globalization remains intact.
So, what is happening in the evolving global trade landscape?
We observe that the new trade policy narrative is gradually leading to some fragmentation in the global trading system, characterized by three key trends: increased political influence, a shift toward sustainability, and a growing focus on traceability.
- More Political: The influence of politics on trade is becoming increasingly evident. Bilateral trade, such as that between China and the US, is affected by political factors, as trade in sectors impacted by tariffs has stagnated relative to others. Geopolitical tensions are increasingly affecting trade flows, resulting in a surge in quantitative restrictions notified to the WTO as National Security measures. The proportion of global trade impacted by international sanctions has also risen from 2% to 12% since the beginning of the century. This political trend introduces greater uncertainty for businesses, making trade policy less predictable.
- More Sustainable: The emphasis on sustainability is another prominent trade policy trend. This is not because trade is inherently at odds with sustainability policies; rather, there is growing evidence that Sustainable Development Goals and climate objectives are at risk if the global trading system becomes fragmented. Climate change, in particular, necessitates global cooperation to coordinate carbon pricing, green technology subsidies, and standards and regulations to ensure efficient progress toward decarbonizing the economy. Trade, including the vine and wine sector, will be directly impacted by these trends, with consumers seeking information on emissions measurements, reduction efforts, and environmental benchmarks.
- More Traceable: Consumers increasingly demand transparency regarding product origins and authenticity. Regulators enforce mandatory information and standards requirements, particularly in the vine and wine sector. The number of trade concerns related to these regulations has risen in recent years. This trend highlights the importance of fostering dialogue, cooperation, and trust through certification and labeling schemes, ultimately preserving the integrity of value chains.
In response to these evolving trends, the G20 Trade Ministers emphasized the need to strengthen the resilience of global value chains. Importantly, they underscored that the multilateral trading system, embodied in the WTO, is a crucial instrument to address these challenges.
In the face of political fragmentation and uncertainty, the multilateral trading system provides stability.
Amid concerns of climate and sustainability fragmentation, the multilateral trading system is the platform for cooperative efforts to achieve sustainability goals and accommodate the needs of developing countries.
Against the risk of regulatory fragmentation, the multilateral trading system fosters transparency, dialogue, and dispute prevention in the adoption of regulations that serve legitimate policy objectives.
This approach, referred to as “reglobalization,” aims to preserve the integrity of the global trading system, extend its benefits, enhance the resilience of value chains, and integrate sustainability and climate imperatives into trade policy.
To realize this vision, international organizations like the WTO and stakeholders must collaborate, share knowledge, and adopt best practices to address the new challenges of global trade.
In conclusion, the wine and vine sector has thrived under globalization, and its importance to governments cannot be understated. This is the opportune moment to advocate for greater investment in the multilateral trading system, as it remains a vital framework for ensuring the stability and sustainability of global trade. The upcoming WTO Ministerial meeting in February 2024 presents a golden opportunity to champion this vision.
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