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The OECD trade and investment response to Covid 19 – the need for a broader, long-term policy discussion on Global Value Chains

23 April 2020

As part of its response to Covid-19 crisis, the OECD has recently released two policy briefs on international trade, mapping government supports and sketching some actions to keep trade flowing.

The starting point is that trade flows are severely hit by the crisis. Already before the pandemic, the context of tense multilateralism had the OECD worried about economic outlook for 2020. Now with global containment measures, the OECD estimates that “the drop in output is equivalent to a decline in annual GDP growth of up to 2percentage points”.

The OECD policy brief rightly emphasises the immediate need to keep trade flowing in order to enable the supply of essential products and food. Protecting the health and safety of workers, in particular for those in the frontline, is indeed a priority for the trade union movement. However, the pre-Covid liberalising agenda is not the answer and market forces on their own will not maintain the supply of essentials. The OECD should formulate clearer policy recommendations on the type of government actions actually required to address shortages, and offer solutions to coordinate those at global level. As the labour movement has stated in its demands towards the G7: “governments should be coordinating an increased supply of medicine, ventilators, masks, face shields, gloves and other personal protective equipment”.

A longer-term reflection also needs to be engaged on the organisation of global value chains (GVCs). While the policy brief recognises that governments are reflecting on the resilience of supply chains, it does not look much further than the immediate impact of confinement measures and fails to acknowledge the root causes of global trade disruptions. As a response to the pandemic, many countries are now applying investment screening measures in order to preserve domestic companies and critical assets, with vital implications for employment.

Multinational enterprises spread their operations internationally and fragment production to as to reduce their costs. This means that production can be heavily localised (in 2019, the OECD already noted that China is at the end of many value chains, particularly in the ICT sector). As we are now learning, this is a severe threat to the continuity of supply chains in case of disruptions. Employment is hardly hit everywhere. But to the extent that the dispersion of value chain activities is motivated by short term costing considerations only, it has even more adverse consequences. The trade union movement has long been pointing out the damaging impact of unchecked liberalisation on labour, environment, public services. The employment and social dimensions of GVC fragmentation and corporate concentration have not been taken on board.

Below certain standards and fundamental rights, firms and countries should not be allowed to compete. More specifically, the OECD Guidelines on MNEs offer a good framework for this. They provide principles and standards for responsible business conduct in a global context. Today, this OECD instrument is insufficient in the global trade context. The OECD should pioneer bold policy discussions on how to guarantee its full respect both at domestic level and through sustainable chapters, including enforceable labour clauses, in free trade agreements.

Furthermore, the relationship between trade and competition must be rethought. As TUAC is regularly pointing out, industry concentration is on the increase and this has an adverse effect on employment and inclusive growth. The expanded market opportunities offered by the trade agenda are channelling the drivers for industry concentration and for “winner-takes-all” outcomes. Long-term solutions must be found to foster more and fairer competition. The objective should be to address wealth capture by a few large firms, but also to contribute to more harmonious development globally. A reflection is warranted on the sectors that countries will want to support in order to guarantee security in supply chains and to boost economic performance. But left at national level only, state interventions can also translate into harmful practices, leading to overcapacity and dumping practices. A global reflection is therefore warranted on the necessary objectives and design of public policies.

In a separate submission to the OECD Investment Committee, TUAC highlighted the importance of developing responses to the COVID-19 crisis, making sustainability the core of all investment policies. The crisis is highlighting the lack of security in supply chains and employment is hardly hit.

There is an urgency to redesign the way investment policies influence the organisation of global value chains. In particular, a reflection is warranted on the type of foreign direct investment that countries should be attracting to secure continuity as well as climbing global value chains and securing their position in higher value added sectors.

In addition, the OECD Investment Committee should issue concrete recommendations on responsible business conduct and labour friendly policies. Such policies need to be applied both at domestic and international level. Indeed, international investment agreements often inhibit host countries’ ability to regulate in the public interest.

TUAC recalls its strong support for the parallel work on the Investment Committee on business responsibilities and international agreements. In its response to the OECD public consultation of February 2020, TUAC had called on the OECD to produce model clauses in investment agreements. We emphasised three priorities:

  1. Countries should actively be reminded of their duties to regulate.
  2. Foreign investors should observe responsible business conduct standards, as embodied by the OECD MNE guidelines, in their supply chains in order to benefit from treaty coverage.
  3. Every international agreement should contain enforceable provisions guaranteeing the respect of fundamental social rights.


Read TUAC full submission to the Investment Committee in the attached Pdf file.