trade facilitation

Trade in Times of Crisis

Trade in Times of Crisis

In all, the pandemic has highlighted a range of challenges and gaps in our trade regime rules. It made clear that times of crisis are not the right times for trying to manage complex issues. Instead, it makes more sense to try to agree on likely steps that can be taken and on coordination mechanisms in advance of the next disaster. Fortunately, the UN’s Economic and Social Commission for Asia and the Pacific (UNESCAP) has already put together a great set of materials to help close the gaps. There is a handbook, online course materials, and a group of resource documents. But perhaps most important for trade officials, there is also a model chapter on trade in times of crisis that deserves to be widely inserted into ongoing regional trade agreements. This short chapter, about a dozen pages, would help during the next disruption by providing a consistent framework for working together with members. It does not address all avenues of trade disruption shown through the Covid-19 pandemic, including subsidies, but it does consider carefully key weaknesses of existing processes and attempt to provide greater clarity around allowable steps to resolve and manage crisis situations. It provides useful precision about what situations might trigger the use of the chapter provisions, helps define essential goods and services, addresses realistic challenges to trade facilitation, and provides the outline of an institutional structure to be utilized in times of crisis. Although the chapter, prepared by Runqiu Du and originally drafted by Tracey Epps, Danae Wheeler and Georgia Whelan, could be easily inserted into FTAs across the region without change, it might also be modified to better suit the specific needs and interests of members.

Building Supply Chain Resilience Starts at the Border

Building Supply Chain Resilience Starts at the Border

The net result of this unprecedented supply and demand shock to the economic system has led to many calls to build or rebuild supply chains with more “resilience.” Resilience is a word, however, a bit like motherhood and apple pie. After all, who doesn’t want a mother or pie? Who wouldn’t want resilience in the face of disruption? Resilience, perhaps like motherhood and apple pie, means slightly different things to different people. For some, it implies a new-found enthusiasm for relocating chains closer to home. If foreign markets are part of the problem, with uncertain responses to unfamiliar challenges likely to arise in the future, getting critical parts or entire chains to move home seems like a logical solution. For others, resilience means building up multiple supply chains, including an extreme version that calls for double chains for every item. The slightly less pronounced version looks to have multiple suppliers available for every item or every critical item in the chain. To minimize disruptive impact, these two chains or multiple suppliers should be located in entirely different countries or regions. Resilience can also mean holding increased inventory, to reduce the shock of chain disruptions. Over the past decade and beyond, firms have been following the “just in time” mantra and eliminating or reducing inventory. Parts, components and raw materials arrive at precise timings and get slotted directly into assembly. The reduction in inventory provided important cost savings for companies, as holding stock is expensive. Governments tend to be less certain about what, exactly, they mean when they ask for resilience in supply chains and are unclear about what sort of actions, if any, they ought to take to ensure it happens.

RCEP: Facilitating Trade for E-Commerce?

One area of particular importance for smaller firms engaged in e-commerce is dealing with problems at customs.  Many e-commerce companies are not shipping 40 foot containers but a few boxes or even just one package straight to consumers or to other companies.  Yet the paperwork and processing requirements to send one small box can be exactly the same a huge container.  Firms often face complicated and cumbersome paperwork requirements at the border.  Some markets charge high fees or inspect every single parcel, which causes expensive delays.  Sometimes these issues are so significant that companies simply stop trying to send goods overseas at all.  These problems are not unique to e-commerce shippers, of course, but if one important goal of RCEP is to facilitate trade for e-commerce, then a final agreement that does not address the real impediments to trade in smaller size, smaller value shipments at the borders will be a missed opportunity.  The benefits of a robust e-commerce chapter that does not simultaneously tackle customs issues could be lost or watered down.

RCEP: Designing an Agreement for the Future

Officials have clearly got a focus on helping the smallest firms in RCEP benefit from the final agreement.  This is a welcome development, since every country in the grouping is dominated by smaller size companies. The one area of sustained focus in RCEP that will be most promising for SMEs is e-commerce and digital trade.  E-commerce and digital trade represent the fastest and easiest way for smaller firms to connect to suppliers, consumers and lead firms.  Given the relatively higher levels of connectivity in Asia compared to other regions, this pathway can be developed further quickly with the right policies in place and help lead to new growth opportunities. Even getting this chapter right is difficult, since it requires that officials think hard about the rules that should structure the business environment today and still remain relevant tomorrow.  The rules need to provide adequate protections for consumers, deal effectively with security concerns but not unduly hamper business plans now or in the future. 

Meanwhile In Global Trade…

This disconnect will need to be addressed.  The global rule book is getting badly out of date.  Current provisions do not match up well at all with the reality of how business is being done on the ground.  While FTAs help, a patchwork of trade agreements is not the best way to address the needs of a dynamic sector of the economy.  The WTO just announced that Argentina will host the next Ministerial round in late 2017.  Member governments cannot show up a year from now and begin to put into place a few more small initiatives.  It really is time for the global trade regime to get out of neutral and get back into gear.