The crunch in global supply chains will continue longer than originally thought and may persistently marginalise developing countries, said the head of the World Trade Organization.
Ngozi Okonjo-Iweala, the former World Bank second-in-command who took over as WTO director-general last March, told an audience in Paris that higher transaction costs risked squeezing poorer countries even after some supply chain problems were resolved.
“We thought the supply chain disruptions would be temporary,” Okonjo-Iweala told a meeting organised by the Jeune Afrique Media Group. “We still think that, but they are taking longer to resolve than we expected — maybe by the end of this year or maybe into next year.”
Amid concerns that smaller companies are being pushed out of trading networks because of supply chain friction, the WTO will convene a meeting of business executives, ministers and trade experts in March to discuss how to ease the persistent blockages, Okonjo-Iweala said.
In October last year Okonjo-Iweala told the FT that supply chain pressures would persist for “several months”, and in November said the problems should be “transitory” and resolved before the end of 2022. But the Omicron variant of Covid, which has closed down some production and transport in China and restricted global travel — forcing the postponement of the WTO’s own ministerial meeting in December — has pushed back expectations of a return to normality.
Okonjo-Iweala said the demand-side pressures that had caused freight delays should ease this year, and that more supply capacity would come on stream.
“Demand for goods should come down, especially with the inflationary pressures and the winding down of support from pandemic-related fiscal measures,” she said. “Shipping companies are making unprecedented profits and some are investing in capacity.”
But she added: “It may also be that there are structural problems that persist. It could be that the problems at US west coast ports, for example, are also due to structural and bureaucratic challenges.
“In addition, there are issues with many developing countries being at the long end of maritime transport,” she said, reflecting concerns that poorer countries with smaller volumes of trade are at risk of being cut out of long supply chains if transport costs remain high.
The March summit aims to bring together shipping, logistics and trading companies with ministers and experts from international organisations to see what improvements can be made in the logistics chain. The gathering is modelled on the WTO’s summit last year, which convened pharmaceutical companies, epidemiologists, health experts and campaigners to speed up vaccine production and delivery.
The WTO ministerial conference, which was due to discuss reductions in fishing subsidies and reforming intellectual property rules on Covid-related medical products, has been postponed until later this year.
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