COVID-19 and 'Ukraine Invasion' Accelerate Protectionism... TBT Notifications Reach Record High of 3,966 Cases

FDI Regulations More Than Double in One Year

"Intergovernmental Technical Standards and Trade Cooperation Must Increase"

President Joe Biden of the United States. (Photo by Yonhap News)

[Asia Economy Reporter Moon Chaeseok] It has been statistically proven that protectionist trade barriers among countries have intensified due to the prolonged COVID-19 pandemic and the power struggle among the United States, China, and Russia. The number of notifications of Trade Technical Barriers (TBT), which hinder the movement of goods and trade by applying different regulations and standards between countries, surged to an all-time high. Global foreign direct investment (FDI) regulatory policies more than doubled within a year.

Recent Trends in Trade Technical Barriers (TBT). (Unit=Cases, Source=Korea Chamber of Commerce and Industry)

On the 12th, the Korea Chamber of Commerce and Industry (KCCI) announced that the number of TBT notifications reported to the World Trade Organization (WTO) last year reached 3,966, marking a record high. This figure represents an 18.3% increase from the previous record of 3,352 cases in 2020. The number of new notifications alone was 2,584, surpassing the previous record of 2,085 cases set in 2018. The upward trend in TBT notifications from developing and least developed countries continued last year. By country, the United States led with 391 cases, followed by China with 126, South Korea with 117, and the European Union (EU) with 104. This indicates fierce competition among major countries over core technology standards and certification procedures. TBT refers to trade barriers that hinder the movement of goods by applying different technical regulations, standards, and testing and certification procedures between countries. Unlike tariffs, these are non-tariff barriers that are not explicitly visible.

The KCCI explained that the increase in TBTs is evidence that countries are using technical regulations as strategic tools in technology and standards competition. Countries are checking each other to recover their economies, which have been stagnated by COVID-19, and to secure leadership in advanced industries. Additionally, the rise in cases where developing countries adopt advanced countries' technical systems, such as energy efficiency rating regulations, has also emerged as a cause of the sharp increase in TBTs.

Global Foreign Direct Investment (FDI) Trends and Policy Developments. (Unit = 100 million USD, Source = Korea Chamber of Commerce and Industry)

Global protectionism and core technology protectionism have led to a phenomenon that suppresses foreign investors' investments. In particular, advanced countries controlled foreign direct investment (FDI) in strategic industry companies. In 2020, when the COVID-19 pandemic began, global FDI shrank by 35% compared to the previous year, remaining at $998.9 billion (approximately 1,232.1432 trillion KRW), breaking the $1 trillion mark. The number of foreign investment regulatory policies introduced by countries more than doubled from 21 in 2019 to 50 in 2020. Promotion policies numbered 72, similar to 66 in 2019. The total number of policies increased by 40% from 107 in 2019 to 152.

The KCCI analyzed that mainly advanced countries increased foreign investment regulations. This was to protect their key industries through national security measures, restrictions on foreign ownership of major infrastructure, and limitations on the transfer of core technologies. Some countries strengthened national intervention policies when acquiring or merging and acquiring (M&A) major domestic security companies (such as the United States, Germany, the United Kingdom, and Canada), while others intensified requirements for using domestic content when foreign capital inflows occur (such as Indonesia, Angola, and Namibia). In terms of investment promotion policies, countries urgently needing foreign investment inflows, such as China, Russia, and Mexico, actively implemented them. They focused on enhancing investment policy transparency, strengthening investor protection, and establishing dispute resolution mechanisms between the state and investors.

The number of global trade restriction measures on goods decreased from 323 cases in 2020, when COVID-19 was at its peak, to 138 cases from January to October last year. These measures were mainly applied to raw materials and component equipment items such as minerals, agricultural products, and textiles.

The KCCI predicted that starting this year, beginning with advanced countries, the transition to an 'endemic' system will start, and the likelihood of increased trade restriction measures by countries is high. This is because the global economy is expected to slow down more than anticipated. The sharp rise in prices and the impact of interest rate hikes by major central banks are expected to influence this. Additionally, the instability of the international trade order due to competition between the U.S. and China and the prolonged Russia-Ukraine conflict may worsen.

Accordingly, the KCCI emphasized the need to strengthen intergovernmental technical standardization cooperation to respond promptly to TBTs and to expand the cooperation base on trade issues with major countries. It advised the importance of proactively responding to technical regulations by understanding recent technological trends and strengthening monitoring of global goods and services trade measures. Lee Sung-woo, head of the KCCI International Trade Department, said, "In the global pandemic situation, the restructuring of supply chains by major countries, competition for technological leadership, and the introduction of carbon border taxes are accelerating and becoming more sophisticated. Given that geopolitical instability is expected to be highlighted due to the hegemony competition among the U.S., China, and Russia, it is urgent to solidify the cooperation base with major countries on trade issues and prepare rapid internal countermeasures."

This content was produced with the assistance of AI translation services.