Simplification of supply chain barriers can boost global commodity trade

Removing barriers is crucial to increase efficiency of supply chains. Efficient commodity trading is crucial to set the global economy on a path of high and stable growth.

The agriculture Trade negotiations began in 2000, under a commitment members made in the 1986–94 Uruguay Round to continue reform in the trade. The Doha Development Round or Doha Development Agenda (DDA) is the current trade-negotiation round of the World Trade Organization (WTO) which commenced in November 2001. Its objective is to lower trade barriers around the world, and thus facilitate increased global trade. Since 2008, talks have stalled over a divide on major issues, such as agriculture, industrial tariffs and non-tariff barriers.

Lowering tariffs does stimulate trade, but it pales in comparison to the economic and trade growth seen when supply chain barriers to trade are reduced. (World Economic Forum studies).

Just to give you an example to highlight the impact, if every country improved just two key supply chain barriers – border administration and transport and communications infrastructure and related services – even halfway to the world’s best practices, global GDP could increase by 5% and exports by 15%.

Supply chain barriers make it particularly difficult for smaller businesses to enter foreign markets.

Despite being key parts of most national economies, small- and medium-sized enterprises (SMEs) have been largely excluded from export markets. Overcoming supply chain barriers often requires significant upfront investment – for example, understanding varying country regulatory requirements – and SMEs may find it difficult to generate enough revenue to compensate for these fixed costs. SMEs are also unable to realize the economies of scale associated with international shipping.

One key element of supply chain barriers is heterogeneity in country policies, and even among regulatory agencies within any one country. A lack of uniform customs rules, for example, makes it significantly more costly for a company to operate in multiple foreign markets. The variation requires companies to invest in understanding many different regulations, and to complete far more paperwork than would be required under uniform standards. In extreme cases, companies must alter product specifications or reorganize their supply chain to deal with conflicting requirements

However the flip side of the story is that – reducing supply chain trade barriers, such as customs clearance delays, lack of standardized procedures and poor infrastructure will not be easy to achieve as it requires extensive investment in infrastructure by individual countries.

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