Reducing supply chain barriers could increase global GDP and world trade much more than reducingall import tariffs, according to a new report released today by the World Economic Forum (WEF) in
collaboration with Bain & Company and the World Bank.The report, entitled ‘Enabling Trade: Valuing Growth Opportunities’ finds that if all countriesreduce supply chain barriers halfway to global best practice, global GDP could increase by 4.7% andworld trade by 14.5%, far outweighing the benefits from the elimination of all import tariffs. Incomparison, completely eliminating tariffs could increase global GDP by 0.7% and world trade by10.1%. Even a less ambitious set of reforms that moves countries halfway to regional best practicecould increase global GDP by 2.6% and world trade by 9.4%.
The report recommends that governments create a focal point to coordinate and oversee allregulation that directly impacts supply chains; that public-private partnerships be established toundertake regular data collection, monitoring and analysis of factors affecting supply chainperformance; and that governments pursue a more holistic, supply-chain-centred approach towardsinternational trade negotiations to ensure that trade agreements have greater relevance forinternational business and do more to benefit consumers and households.
According to the report, lowering supply chain barriers is effective because it eliminatesresource waste and reduces costs to trading firms and, by extension, lowers prices to consumers andbusinesses. Supply chain barriers can result from inefficient customs and administrativeprocedures, complex regulation and weaknesses in infrastructure services, among many others. Thesupply chain is the network of activities involved in producing and getting a product to consumers,and spans the manufacturing process as well as transport and distribution services.
Economic gains from reducing supply chain barriers are also more evenly distributed acrosscountries than the gains associated with tariff elimination. Regions that stand to benefit inparticular under these scenarios are sub-Saharan Africa and South East Asia. Such large increasesin GDP would be associated with positive effects on unemployment, potentially adding millions ofjobs to the global workforce.
The Enabling Trade report was initiated by the Forum’s Global Agenda Councils on Logistics &Supply Chains and Global Trade & FDI. The report provides a wealth of information regarding howpolicies can create unnecessary supply chain costs and inefficiencies based on 18 case examplesspanning multiple industries and regions. The case examples highlight that clusters of policiesjointly impact supply chain performance; that a concerted approach is needed to cut acrossdifferent policy domains; that there may be specific tipping points that need to be achieved forreductions in supply chain barriers to have a significant impact on trade; and that small andmedium enterprises (SMEs) tend to face proportionally higher supply chain barriers and costs.
“The Forum’s Enabling Trade programme has endeavoured to highlight the fundamental attributesthat enable a country to facilitate trade,” said Børge Brende, Managing Director, World EconomicForum. “Through a vivid repository of case studies, which provide an on-the-ground view of everydaybarriers that companies face along trade lanes, this report shows that removing barriers to supplychains can enhance economic competitiveness and generate significant welfare benefits and jobs forcountries.”
“The case studies show that countries can lose their competitive advantage in terms of factorcosts, if the costs associated with their supply chain barriers are high,” said Mark Gottfredson,Partner, Bain & Company. “The lesson for companies is the importance of understanding supplychain barriers and how the associated costs and delays can erode other sourcing advantages. Forexample, a case study on the apparel industry illustrates how delays at the border, inconsistentapplication of regulations, and infrastructure issues completely offset significant labour costadvantages for many countries.”
“Supply chain barriers are more significant impediments to trade than import tariffs,” saidBernard Hoekman, Director of the World Bank’s International Trade Department, who is also the Chairof the Forum’s Global Agenda Council on Logistics & Supply Chains. “Lowering these barrierswill reduce costs for businesses, and help generate more jobs and economic opportunities forpeople.”
Some examples from the 18 country and sector case studies in the report include the following:
* In Brazil, managing customs paperwork for exports of agricultural commodities can take 12times longer than in the European Union (a full day versus a couple of hours).
* Poor quality infrastructure services can increase the input material costs of consumergoods by up to 200% in certain African countries.
* In Madagascar, supply chain barriers can account for about 4% of total revenues of atextile producer (through higher freight costs and increased inventories), eroding the benefits ofduty-free access to export markets.
* Obtaining licenses and lack of coordination among regulatory agencies in the US lead todelays in up to 30% of chemical shipments for one company – each late shipment costs US$ 60,000 perday.
* In Russia, product testing and licensing in the computer sector can lead to highadministrative costs and delay time-to-market anywhere from 10 days to eight weeks.
* Local content requirements, rule-of-origin restrictions and pilferage at the border, canincrease costs by 6-9% of consumer technology products in the Middle East and North Africa.
* Eliminating supply chain barriers in the South East Asian rubber market could reducecarried inventories by 90 days, representing a 10% reduction in product cost.
* India’s Preferential Market Access regulation, which provides preference for locallyproduced high-tech products in government procurement, could increase costs by 10%, over the costof imports.
* Adopting electronic documentation for the air cargo industry could yield US$ 12 billion inannual savings and prevent 70-80% of paperwork-related delays.
* Easing regulatory compliance of international trade that SMEs face when selling through theInternet could increase cross-border SME sales by 60-80%.
