Moneycontrol PRO

Key G7 panel recommends new body to monitor global trade in semiconductors, critical supplies

Given the fluctuations in trade, rising demand and growing scarcity of raw material, the proposed Critical Supply Forum will become significant for major users of semiconductors including India.

June 10, 2021 / 02:07 PM IST
Attendees touch elbows to great each other at a preparatory meet in May 2021 in the UK before the G-7 leaders summit in June.

Attendees touch elbows to great each other at a preparatory meet in May 2021 in the UK before the G-7 leaders summit in June.

A key G7 panel has suggested that the bloc set up a Critical Supply Forum to identify emerging risks and provide policy coordination for national governments in times of crisis to ensure that the flow of critical goods and services doesn’t stop.

The suggestion is part of the policy recommendations on a broader range of issues by the G7 Economic Resilience Panel, which was presented to the G7 leaders who are expected to discuss and act on them during their three-day summit beginning on June 11 in Cornwall, United Kingdom.

“The G7, working with other open economies and relevant international organisations like the OECD, should lead the establishment of a Critical Supply Forum to identify emergent risks; build common vulnerability indicators and methodologies, share best practices, and provide a policy coordination forum for national governments in times of crisis to ensure trade measures support the necessary flow of critical goods and services,” the panel said.

The suggestions are meant to not only overcome trade and logistical challenges that arise during a global economic crisis but also work on curbing the growing dominance of China and Russia in critical goods, senior trade experts said.

For this purpose, it suggested that a G7+ Rapid Response Mechanism for Essential Goods in Crises be coordinated to facilitate early, political-level coordination during future crises, and an information-sharing platform called Critical Minerals and Metals Information System (CriMMIS) be incubated.

Crucially, health, critical minerals and the increasingly contentious sector of semiconductors have been flagged as critical.

Eye on semiconductors

Semiconductors are the building blocks for a range of industries such as electronics, power, computer hardware and engineering, with integrated circuit boards being the bedrock of modern technology.

Sudden swings in global semiconductor trade flows have led to volatility, price rises and a shortage in the sector, which have taken a toll on automotive, industrial and communications products. The issue was flagged by the US government after an executive order on supply chains signed by President Joe Biden in late February directed government departments to assess supply chain vulnerabilities.

The semiconductor market is poised to grow by $90.8 billion during 2020-2024, progressing at a CAGR of over 4 percent during the forecast period, according to the World Semiconductor Trade Statistics.

Despite the pandemic, global semiconductor sales increased 6.5 percent to $439 billion in 2020, according to the US-based Semiconductor Industry Association. Most of this revenue found its way to the US, Taiwan and South Korea, which have the largest semiconductor producers in the world.

With Chinese production gaining pace and Beijing developing the next generation of semiconductors, Biden is pushing the US Congress to approve more than $50 billion in funding to advance domestic manufacturing of semiconductors as well as research and development. Other western nations are following suit.

WTO action

The panel supported accelerating plurilateral initiatives within the World Trade Organization, which has increasingly been dominated by rivalries between major players such as the US and China.

Apart from creating consensus-based, stronger multilateral rules, the G7 panel’s most striking suggestion was one on the environment.

The panel said climate should be made an integral part of the modernization agenda by advancing negotiations on plurilateral agreements to phase out tariffs on environmental goods, and revising existing agreements to encourage decarbonization and supply chain resilience, including revising rules on incentives and subsidies.

It urged the G7 leaders to work on dispute settlement reform at the WTO and strengthen the connection between trade and health by deepening the WTO Agreement on Trade in Pharmaceutical Products.

The panel asked the leaders to ensure that the Agreement on Trade-Related Intellectual Property Rights is not used to abuse market power over life-saving drugs, a key argument raised by India in its demand for an at least three-year waiver of intellectual property rights globally for COVID-19 vaccines.

In a move aimed at China, the panel said the G7 should deepen efforts to address market distortions caused by unfair subsidies and uncompetitive behaviour of state-owned-enterprises.
Subhayan Chakraborty