There is a grand coalition forming to try to change what trade negotiators talk about. Traditional trade negotiations, as the general public conceives them, must focus on cutting tariffs, trying to control subsidies, fights over anti-dumping and countervailing duties, and the occasional chicken or pasta war. That’s what gets the attention of politicians and the editors of most business publications. The perception that trade talks are mostly about lowering customs duties is based on the first three decades or so of the post-war GATT/WTO trading system. Back then, tariffs were a huge impediment to trade. There are exceptions, but today it is mostly desperately poor countries that maintain the highest tariff walls. The negotiating system has worked and customs duties are now a minor irritant among major trading nations and for most products. That’s not to say there isn’t more to be done. Duties for some agricultural products and most textiles leap to mind.

Reducing supply chain barriers to trade could increase GDP up to six times more than removing tariffs.
~ Enabling Trade: Valuing Growth Opportunities

The coalition I mentioned includes the World Bank, the World Economic Forum and Bain & Company. They jointly issued a report during the Davos meetings, Enabling Trade: Valuing Growth Opportunities, to highlight what hinders both trade and global economic growth today. Surprise! It’s not customs duties anymore. The major impediments are the small stuff: the rules and regs that slow down transportation and customs clearance. The joint report is written in industrial terms, appropriate since it was directed to the captains of giant industries and government leaders who converged on Davos. The emphasis is “supply chain management”, implying industrial inputs and intermediate goods, but the conclusions apply to anything that needs to move from country to country. The barriers faced by intermediate goods tend to be the same barriers faced by final products ready to meet the consumer. That means these impediments to trade hurt small traders just as much as they do the big boys at Davos. Probably more, because there are few SMEs that can commit staff to following the minute regulations for every country they may ship to.

Reducing supply chain barriers to trade could increase GDP by nearly 5% and trade by 15%. 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%).
~ Enabling Trade: Valuing Growth Opportunities

Don’t get me wrong. Trade talks under the WTO and other organizations have tried to address these supply chain barriers and have achieved some success. We have international agreements on customs valuation, import licensing and much else, but they are applied unevenly. Plus, as the World Bank/WEF/Bain report emphasizes, real change is going to require not only commitment by government, but real investment by governments and companies. We need to replicate global best practices wherever possible, such as the electronic customs clearance systems used by Singapore and a few others. This may not be a matter of negotiation as much as the will to change things. Above all, it requires our government and corporate leaders to think about what can be done to make trade easier, not harder. And corporations need to think of trade hindrances as unacceptable costs in their supply chain management.

It was a little over a year ago that I spoke to an APEC committee on small business and international trade. One of the questions I was asked was what should be put into the Trans Pacific Partnership agreement that might help small business. The questioner (I won’t name the delegation) clearly assumed that there should be some special clause with rhetoric that SMEs need government help. He was non-plussed when I responded that no special clauses were necessary or wanted by SMEs. Instead, we need to get the hassle out of international trade, reducing things like customs clearance to an absolute minimum. My statement was applauded by delegations from Singapore, Hong Kong and Taiwan. No reaction from the larger countries. Let’s see what happens now that the World Bank and the World Economic Forum are on our side.