Reducing supply chain barriers could increase global trade, suggests WEF report

Reducing supply chain barriers could increase global GDP and world trade much more than reducing all import tariffs, according to a new report released today in Davos by the World Economic Forum in collaboration with Bain & Company and the World Bank.

Supply chain barriers can result from inefficient customs and administrative procedures, complex regulations and weaknesses in infrastructure services, among other issues. The collaborative report, Enabling Trade: Valuing Growth Opportunities, finds that if all countries reduced these supply chain barriers halfway to global best practice, global GDP could increase by 4.7% and world trade by as much as 14.5%, far outweighing the benefits from the elimination of all import tariffs.

In comparison, completely eliminating tariffs could increase global GDP by 0.7% and world trade by 10.1%. The report suggests that even a less ambitious set of reforms that moves countries halfway to regional best practice could increase global GDP by 2.6% and world trade by 9.4%.

The report finds that the economic gains from reducing supply chain barriers are also more evenly distributed across countries than the gains associated with tariff elimination. It is believed that sub-Saharan Africa and South East Asia would particularly benefit from these measures. Such large increases in GDP would be associated with positive effects on unemployment, potentially adding millions of jobs to the global workforce.

“Supply chain barriers are more significant impediments to trade than import tariffs,” said Bernard Hoekman, Director of the World Bank’s International Trade Department, who is also the Chair of the Forum’s Global Agenda Council on Logistics & Supply Chains. “Lowering these barriers will reduce costs for businesses, and help generate more jobs and economic opportunities for people.”

The report recommends that governments create a focal point to coordinate and oversee all regulation that directly impacts supply chains; that public-private partnerships be established to undertake regular data collection, monitoring and analysis of factors affecting supply chain performance; and that governments pursue a more holistic, supply-chain-centred approach towards international trade negotiations to ensure that trade agreements have greater relevance for international business and do more to benefit consumers and households.

“The Forum’s Enabling Trade programme has endeavoured to highlight the fundamental attributes that enable a country to facilitate trade,” said Børge Brende, Managing Director, World Economic Forum. “Through a vivid repository of case studies, which provide an on-the-ground view of everyday barriers that companies face along trade lanes, this report shows that removing barriers to supply chains can enhance economic competitiveness and generate significant welfare benefits and jobs for countries.”

About Enabling Trade: Valuing Growth Opportunities

Enabling Trade: Valuing Growth Opportunities was initiated by the World Economic Forum’s Global Agenda Councils on Logistics & Supply Chains and Global Trade & FDI. The report provides a wealth of information regarding how policies can create unnecessary supply chain costs and inefficiencies based on 18 case examples spanning multiple industries and regions. The case examples highlight that clusters of policies jointly impact supply chain performance; that a concerted approach is needed to cut across different policy domains; that there may be specific tipping points that need to be achieved for reductions in supply chain barriers to have a significant impact on trade; and that small and medium enterprises (SMEs) tend to face proportionally higher supply chain barriers and costs.