Shifting Focus in Trade Agreements: Boosting Supply Chain Efficiency to Grow Global GDP

Last week, the World Economic Forum (WEF), in collaboration with the World Bank and Bain & Company, issued the report, “Enabling Trade: Valuing Growth Opportunities.” The report concluded that reducing supply chain barriers in two key areas – border administration and transportation and telecommunications infrastructure – could increase global GDP up to six times more than total tariff elimination. The WEF paper calls on governments and the private sector to tackle these barriers through coordinated action, something which we here at Cisco strongly support.

Meanwhile, two other studies advocate similar approaches.

First, the World Trade Organization (WTO) and the Organization on Economic Cooperation and Development (OECD) have measured trade flow in relation to value added by a country in the production of a good or service that is exported. This approach provides insight into the importance of services, the role of imports in production processes, the reality of economic interdependencies, and the role of emerging economies.

Second, a recent paper by Bernard Hoekman and Selina Jackson at the World Bank suggests that trade policy negotiations should be structured in ways that reflect the independencies of global supply chains. This approach would improve the commercial relevance and utility of trade liberalization agreements and is being explored in the Transpacific Partnership (TPP) negotiations. This is a groundbreaking approach to trade negotiations that better-reflects the imperatives of global supply chains.

Bottom line: With these new analyses in hand, governments have an opportunity to adjust their thinking and realign their policy and funding priorities to capture the benefits of supply chain efficiency. In doing so, they can accelerate global GDP growth around the world.