Monday, March 11, 2013

Supply chain and barriers to trade

When one thinks of reduction of barriers to international trade the usual response is tariffs ad non-tariff technical barriers. Over the years negotiations have brought down tariff barriers to considerably low levels as compared to earlier times. However, experts contend that an important aspect of trade - supply chain management has not been given enough importance.

The World Economic Forum released a report recently that suggests that "concludes that they are far more significant impediments to trade than tariffs. In fact, reducing supply chain barriers could increase world GDP over six times more than removing all tariffs."
"If every country improved just two key supply chain barriers – border administration and transport and communications infrastructure and related services – even halfway to the world’s best practices, global GDP could increase by US$ 2.6 trillion (4.7%) and exports by US$ 1.6 trillion (14.5%). For comparison, completely eliminating tariffs could increase global GDP by US$ 0.4 trillion (0.7%) and exports by US$ 1.1 trillion (10.1%). The estimates of the impact of barrier reduction are conservative; they reflect improvements in only two of four major supply chain categories."
While the report itself details out individual case studies on how supply chain efficiencies can increase trade, I found one of the recommendations interesting:
"International trade negotiations usually take a silo approach, addressing policy areas in isolation. Lowering supply chain barriers requires a more holistic approach that spans key sectors that impact trade logistics, including services such as transport and distribution, as well as policy areas that jointly determine supply chain performance – in particular those related to border protection and management, product health and safety, foreign investment, and the movement of business people and service providers. A whole of the supply chain approach can be pursued through both multilateral and regional trade agreements."
Moving away from "silo" approaches to horizontal, platform approaches is the need of the day. Will we see more thought and effort to reduce supply chain barriers in the current round of negotiations? Is the Trade Facilitation Agreement the answer?

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