Changing Times of Global Trade
THE times they are a changing. This is true in terms of technology, geopolitics and social norms. It's true as well in terms of world trade. Factors large and small are changing the way we trade in the 21st century. Certainly, trade retains its central place in the global economy.
Who would have imagined that China, on entering the WTO in 2001, would emerge just ten years later as the world's largest exporter with merchandise exports of USD 1.9 trillion? Who could have foreseen the travails of the Doha Round negotiations that brought us to the brink of success before we reached an impasse over an issue as old as trade itself - the exchange of manufactured goods.
Even the way we trade has changed immensely. In the past, goods were made in Mexico, or Mauritius or Malaysia. Today, goods are made in the world. The expansion of global value chains means that most products are assembled with inputs from many countries. Products cross borders frequently during various stages of assembly. Trade in intermediate goods is the most dynamic sector of international trade growing at a rate of 6 per cent per year. And this trade is taking place in high-technology sectors which generate well-paying jobs. Twenty years ago, the import content of exports was 20 per cent. Today, it is around 40 per cent. More than half of global manufactured exports are components which are inputs to other as yet unfinished goods. In Asia, the figure is more than 70 per cent.
Savvy governments are aware that trade policies which encourage enterprises - particularly small and medium-sized enterprises - to participate in global value chains make it easier to attract foreign investors looking to build local production facilities.
Time is money. The longer a shipment is held up in port or at customs, the more it costs the exporter and the importer. Every extra day required to ship goods reduces trade by 1 per cent. On an average sea voyage of 20 days, one extra day at sea results in a 4.5 per cent drop in agriculture trade between any two trading partners.
A shipment requiring 34 documents to move through the port and onto a truck will cost you more than one that requires five documents. You know that having to pay a myriad of different agencies to ensure safe passage of your shipment is cause to reconsider doing business in a particular country. A WTO agreement, backed by the WTO's dispute settlement system, would harmonize and update the rules on customs fees, documentation and the treatment of goods in transit.
"Because things are the way they are," said Bertolt Brecht, "things will not stay the way they are".
[Excerpts from the speech of WTO DG, Pascal Lamy at Minnesota on 17th April 2012.]