Supply chains have rarely felt more fragile. From drought in the Panama Canal to conflict affecting the Red Sea, barely a month has passed without new challenges emerging.
Of course, there have always been geopolitical issues to navigate, but globalization itself has come into question post-pandemic with greater regionalization of supply chains prompting fragmentation. Meanwhile, with climate instability also set to increase, the level of unpredictability could further spiral.
The broader economic outlook only adds to these challenges. The World Bank forecasts that the global economy is set to have its weakest half-decade performance in 30 years. It expects that this year, global trade growth will be half the average rate in the decade before the pandemic.
To address these evolving threats to global prosperity, the trade architecture within which we operate can and should be made more predictable and seamless to boost economic growth.
The World Trade Organisation (WTO) sits at the heart of this system, but it has faced considerable headwinds and the organization’s dispute settlement mechanism is in crisis.
The business community must work closely with governments to focus on what can be controlled: easing trade frictions and supporting a mutually beneficial, rules-based order. It’s time to strengthen the system that has underpinned decades of global growth.
Firstly, tariffs are one of the leading causes of trade friction. High tariffs bring significant risks to the world economy, leading to fewer consumer choices, higher prices, and slower technological innovation. New economic modeling by Economist Impact projects a global GDP contraction of almost 1% if trade barriers on high-tech goods increase significantly–a focal point in current geopolitical tension.
Secondly, the WTO needs support through its reform process. Governments must endorse long-awaited, mutually beneficial agreements, such as the proposed Investment Facilitation for Development Agreement, which will help emerging markets secure the necessary funding to develop sustainable, resilient infrastructure.
Thirdly, greater digitalization is where tangible and quick progress can be made to deliver meaningful change. Full digital trade implementation, including paperless cross-border trade, could cut average costs globally by nearly 14%.
In countries with modernized customs procedures in line with the Revised Kyoto Convention, import and export times can be as much as 64% lower and dramatically cheaper. Fewer delays also mean lower emissions, significantly improving energy efficiency.
However, less than half of governments have fully implemented paperless cross-border trade, and low digital implementation often reinforces existing inequities. Despite some progress, Sub-Saharan Africa and the Pacific Islands have the lowest implementation rates.
Fourth, we must leverage public-private partnerships to speed up digitalization. While logistics operators can handle much of the technology, we need governments to lead in setting the standards and formats for the flow of trade information. “Single Windows” is an excellent example of this collaboration. Delivered by the World Bank and funded by its Trade Facilitation Support Programme, this initiative is a path for paperless trade. It is the type of partnership needed to help standardize information, reduce costs, and expedite international trade procedures without the need for broad trade agreements.
Finally, the private sector should have a greater voice in determining trade rules. The private sector has largely remained a bystander in these discussions. This must change. Creating a new business advisory group within the WTO should help drive a renewed focus on delivering agreements that will make a difference in our daily lives by enabling the flow of goods, delivering vital services, creating jobs, and improving living standards.
As we enter an uncertain phase of globalization, we must ensure our systems and institutions are sufficiently resilient to address evolving challenges. We call on policymakers to support the rules-based order that has underpinned decades of growth while reducing friction to boost the world’s future economic prospects.
Sultan Ahmed bin Sulayem is DP World’s group chairman and CEO.
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