Davos 2023-Be careful on ‘friend-shoring’, WTO’s Ngozi warns

DAVOS, Switzerland (Reuters) – Trade blocs seeking to skirt geopolitical risk by “friend-shoring” activities to like-minded countries should be careful which commerce partners they favour, World Trade Organization chief Ngozi Okonjo-Iweala said on Thursday.

U.S. Treasury Secretary Janet Yellen and others have used the term to encourage countries to diversify supply chains away from China to market-oriented democracies such as India.

Speaking on the sidelines of the World Economic Forum in Davos, Okonjo-Iweala urged caution, citing the need to explore trade opportunities more widely with those countries and regions that until now have been left on the margins of world trade.

“Who is a friend? You’re not too sure they’ll be a friend tomorrow, we’ve seen examples of that,” she told Reuters.

“Friends should not just be in Asia, there is Latin America, there is Africa. There are countries there that are places where you can perfectly de-concentrate manufacturing. You bring them into the supply chain and that way you also include them.”

The Ukraine war has prompted a hasty exit from Russia of the Western firms who for years – with the support of their governments – saw it as a lucrative market. Similar aspirations for China have also cooled amid human rights and other concerns.

Okonjo-Iweala has acknowledged that the WTO in its current form need to reform its processes and institutions to make sure it can effectively promote free trade. But she called on trade blocs not to abandon the WTO and its rules-based system.

“Don’t throw the baby out with the bathwater,” she said. “If you do it outside, you are in for a free-for-all and I don’t think that would be for the benefit for anyone.”

(Reporting by Mark John in Davos; Editing by Mark Heinrich)