Wake-up call signals time has come for global trade to evolve

The outlook for trade is positive amid a recently concluded pan-Pacific accord and a more dynamic supply chain, argues Alex Manson, global head of transaction banking at Standard Chartered Bank.

Is the Trans-Pacific Partnership (TPP) a long-awaited breakthrough or a nail in the coffin of multilateralism?

The TPP is a real breakthrough. First it is the strongest endorsement we have seen for some time of the role of trade and openness in the context of global economic growth and development, arguably amid the most tangible structural challenge to global growth in over a decade. TPP simply implies a recognition that both US multinationals and the many SMEs that drive Asia’s economies stand to benefit from access to international markets for their goods and services.

Second, there is a clear achievement in establishing the parameters around what more open trade in the modern world looks like – from specific industries, to intellectual property protection and services. I have argued in the past that policy needs to evolve to reflect trade in the modern era, where the value chain is “unbundled”, supply chains are global and trade also happens in services and intellectual capital. The finer details and execution of the TPP will be key but the fact that these topics are being addressed and agreed upon is a genuine breakthrough.

So is it bad for multilateralism?

Granted the TPP does not involve every country in the world, and it has a very notable absentee – China, the linchpin of many global supply chains today. But that doesn’t make it a bad thing: covering 12 countries in six regions and a very meaningful portion of global GDP irrespective of how you measure it, the TPP is also very far from the traditional image of a “regional trading block” excluding others from the benefits of its trade. The vision for the future of multilateralism is that the TPP can serve as a blueprint for future agreements to come, including China and others and allowing multilateralism (and the WTO) to progress to the next stage of its evolution.

Besides regionalism, what are the other key drivers affecting world trade?

Trade today is radically different from that of even 10 to 20 years ago. Products are now “made in the world” in global supply chains – collaboratively, by large and small firms existing as extensions of each other: we can speak of “ecosystems” of companies that together, define world trade today. Companies also legitimately trade in intellectual capital and services across borders, facilitated by technology.

Maximising the efficiency of this integrated global trading system takes on a number of new dimensions – in contrast from the past where trade tariffs and physical protectionism might have been the main concerns. Now we need to consider the alignment of technological and industry (so- called “private”) standards, the lowering of implicit barriers to smaller companies participating in trade (such as access to information, customs administration and language barriers), protection of intellectual property across borders, particularly in the context of services.

From my own standpoint of course, I’d add an efficient international financial infrastructure to facilitate the seamless transmission of payments and information around the planet and allowing access to the financial system to all participants of the global value chain, in particular SMEs in emerging markets.

Who will be the winners in world trade in the coming decade?

I would argue against a language of “winners” – as it implies losers on the other side of the equation: today trade has moved away from a contest between nations towards the notion of “made in the world” and “sold in the world”, in which goods progress through stages of value add, facilitated by trade.

For companies, the ones to thrive will be those who can adapt – most importantly by placing their customers’ needs at the centre of their decisions; with professionals embracing technology, enabling the convergence of goods and services to create an exceptional and sometimes emotional customer experience. Such companies will also ask themselves rigorously and regularly where they can create sustainable value in the context of global supply chains. Having said that, the TPP should encourage a more open world order and make it easier for SMEs to expand overseas, as they are specifically the ones who typically get most intimidated by barriers and tariffs.

For governments, beyond the expected rule of law to enable business, it is also broadly defined as the notion of “openness” – to physical trade but also intellectual capital: ideas, people and skills that will build core competencies allowing differentiation and competitiveness in the world of global value chains, ultimately driving domestic economic growth and development.

If you could make one thing happen in the next 12 months, what would it be?

Trade and openness are good for the world and achieving the next milestones will lead to a revitalisation of global growth and ultimately enable progress towards the UN’s 17 sustainable development goals.

As the TPP gets ratified, this ought to be a wake-up call for multilateral organisations including the WTO; a realisation that they need to evolve, represent emerging markets more adequately and play a tangible role in addressing the practical issues inhibiting trade, global growth and economic development. Just the realisation of these facts and the beginning of reform and revitalisation by participating nations would be a historical moment.

* Courtesy WEF

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