WTO chief warns of 'friendshoring' risks'

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Nations should look beyond like-minded countries when considering options for new trade agreements, the WTO director-general has stated.

The director-general of the World Trade Organization (WTO) has warned countries that are reevaluating their international trade relations to favor certain partners that they should think very carefully when deciding which nations to sign agreements with.

Ngozi Okonjo-Iweala made the comments at this week's annual World Economic Forum meeting in Davos, where she emphasized the importance of looking beyond obvious partners and considering deals with nations that have until now been left on the sidelines of global trade.

The term 'friendshoring' has been used by officials such as US treasury secretary Janet Yellen recently to refer to efforts to diversify supply chains with an emphasis on forging agreements with nations that share similar views.

For example, Reuters noted the US has used it as part of a strategy of moving away from China and towards "market-oriented democracies" such as India. 

However, Ms Okonjo-Iwaela said that nations that only seek out like-minded partners may be overlooking other opportunities elsewhere in the world, while countries should not be mindful of the impact on trade that could result from any changes in geopolitical situations.

For example, in recent years, many western firms have sought to grow operations in Russia, with the support of their governments, seeing it as a highly lucrative market. But Moscow's invasion of Ukraine last year forced many businesses to quickly reevaluate these activities.

"Who is a friend? You're not too sure they'll be a friend tomorrow, we've seen examples of that," Ms Okonjo-Lwaela told Reuters.

She added: "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."

By bringing these nations into the supply chain, countries could stand to benefit from many as-yet untapped opportunities when looking to diversify their supply chains, the director-general continued.

In other comments at the gathering in Switzerland, Ms Okonjo-Iwalea also urged trade blocs to work with the WTO and its processes, following concerns that some countries may abandon the body's rules-based system in frustration with its outdated processes and slow pace of reform.

"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 of anyone."