Quick Win No. 1

Create a stable and predictable trade environment to promote sustainable and resilient supply chains

In the past three decades, the world has enjoyed numerous benefits of trade liberalization. For example, in the first 25 years since the establishment of the WTO average tariffs dropped from 10.5% to 6.4%, and the value of global trade nearly quadrupled. The emergence of a global supply chain seamlessly weaved goods and services from various corners of the world into products ready for consumers’ hands. However, disruptions in recent years, such as the COVID-19 pandemic, climate-change-related natural disasters, and geopolitical events, have exposed significant risks in the global supply chain model. These disruptions have propelled businesses to diversify their supply chains in order to mitigate disruption risks. This means increasing sourcing opportunities from a diverse geographical footprint. 

However, in attempts to enhance supply chain security, some policymakers have retreated from an open, multilateral solution and opted for market fragmentation strategies, such as decoupling, reshoring, and friendshoring. Some governments have also adopted restrictive measures, such as tariffs, subsidies, export controls, and other regulatory barriers. These policy-driven geo-economic fragmentation efforts have significant macroeconomic costs. The IMF has warned that they could cost global output by up to 7% of global GDP. Moreover, market fragmentation creates multiple silos of trade rules for business operators to observe and, in turn, increases logistics, operations, and compliance costs. These costs are particularly problematic for small and medium enterprises (SMEs) who are not equipped with ample capital to undertake compliance obligations. Ultimately, this might push some SMEs out of the  market, and reduce the opportunities to diversify global supply chains. 

Further, without a predictable environment that fosters legal certainty and regulatory clarity, businesses cannot effectively assess their risks and opportunities.  To better enhance supply chain resilience while promoting diversity and inclusion, collaboration in multilateral fora is crucial. Here, the WTO has a significant role to play. Members should negotiate and adopt measures which create a stable trade environment with more and better sourcing options and greater economic opportunities within the global value chain. For example, the Trade Facilitation Agreement seeks to lower business costs and mitigate cumbersome regulatory overheads by simplifying, modernizing, and harmonizing the export and import process. It is estimated that once fully implemented, the agreement could reduce trade costs by an average of 14.3% with the biggest gains realized by the poorest countries. The WTO can also facilitate multilateral efforts to maintain trade openness and diversify supply chains, including through the sharing of practical experiences on how to approach supply chain resilience. 

The multilateral trading system remains the most effective approach to facilitate the diversification of supply chains, which not only can reduce costs but help businesses to adjust to shocks thereby promoting supply chain resilience.