Source: World Economic Forum
The post-war world has seen remarkable advances in prosperity and poverty reduction. Associated with these advances has been an unprecedented expansion of international trade and investment. Whereas international trade was 25% of world GDP in 1960, it exceeds 60% today (World Bank, 2015). This progression owes much to technological advances as well as to consumers’ demand for greater variety and quality as their incomes increase, although trade and investment liberalization policies have been instrumental. In particular the system of norms, laws and regulations established multilaterally under the General Agreement on Tariffs and Trade/World Trade Organization, extended and deepened by bilateral and regional trade and investment agreements such as the European Economic Community, North American Free Trade Agreement (NAFTA), hundreds of free trade agreements (FTA) and over 2,000 bilateral investment treaties, has created an environment where trade in most parts of the world and in most sectors is largely open and predictable. For example, according to a recent paper by World Trade Organization (WTO) and Organisation for Economic Co-operation and Development (OECD) economists, 80% of developing countries’ exports by volume now regularly enter advanced countries duty free, compared to 55% 20 years ago (WTO, 2014).
Against this background, private enterprise, measured for example by the number of firms active in international trade or by their stock market capitalization, has flourished as never before. However, with rapid advances in communications and transport technologies and the globalization of production marked by the proliferation of complex global supply chains, the demands on the trading system for deeper and more comprehensive disciplines have increased greatly. Meanwhile, the Doha tradenegotiation round has been written off in various quarters, many bilateral and regional deals are struggling to conclude, spontaneous liberalization has slowed and is being reversed in some countries, and world trade has decelerated sharply in the wake of the global financial crisis. Not surprisingly, there is now pervasive concern (some would say alarm) that the trading system is no longer delivering that which private enterprise needs. The central point is that trade rules and reforms of behind-the-border regulations that have a profound impact on trade are evolving far too slowly – they are not even remotely keeping pace with the hectic speed of change faced by international enterprise.For reasons of efficiency and equity, the consequences of this troubling situation for smaller enterprises are of special concern. While the rise of the internet and of express delivery package services has created the potential for a multitude of small companies to sell and buy all over the world, thereby taking the efficiency-enhancing effect of trade potentially to a new level, their involvement in trade remains limited in most instances, and international trade continues to be dominated primarily by the largest corporations. According to the Financial Times (FT), at present almost half of the revenues of companies that are part of the S&P 500 are generated internationally, compared to a little shy of a quarter for “small-caps”, which, despite their appellation, are actually large companies, with market capitalization of $300 million to $2 billion. International trade is more open and predictable than ever before, but the cost and complexity of engaging in international trade remain far too high and often prohibitively so for small companies. Researchers have estimated that “trade costs”, the total cost incurred in delivering a product from the factory door to the ultimate consumer, including transport, customs procedures and distribution, can easily exceed the cost of its production, and that these “trade costs” could be substantially reduced if customs procedures and transport regulations were rationalized, distribution channels were made more competitive, and protectionist standard setting and corruption were reduced.
This report aims to set out some important ways in which the world trading system, beginning with the WTO which is at its centre, can better serve the needs of the 21st century private enterprise. Addressing these concerns would not only be beneficial for productivity and living standards across the world, but also would encourage private enterprises, especially smaller firms, to become more active participants and advocates for trade.
As Susan Schwab shows in the next section, multinational companies are increasingly hailing from developing countries, and they have much in common with established players from advanced countries. She explains why all these large enterprises have lost interest in the WTO, and what they want from multilateral trade negotiations to become re-engaged. The specific needs of small and medium-sized enterprises (SMEs) are then examined by Beatriz Leycegui from a developing country perspective, and by Christopher Logan from the US perspective. They show that, despite big differences in productivity and living standards, the What Companies Want from the World Trading System 5 impediments constraining small enterprises across the world from adequately participating in trade are similar; in a nutshell, all these impediments have to do with the cost and complexity of engaging in international trade and the limited resources to overcome them.
The cross-cutting contributions of these authors are followed by an examination of more specific concerns. Uri Dadush shows that the structure of world production and of international trade is shifting rapidly from manufacturing to services, where SMEs are most active, and that the foreign currency earnings of developing countries have become more diversified. He argues in favour of policies that promote increased connectivity with the world across the board, favouring all companies, rather than assistance to specific sectors and the politically powerful. Vera Thorstensen takes a sceptical view of the proliferation of private standards, which carry some benefits (as many are market-driven) but also the risk of distortions, arbitrariness and new impediments to trade. Finally, Alex Manson argues that there are unintended adverse consequences from the higher prudential and conduct regulation of banks in the wake of the financial crisis. He highlights in particular the increased cost of trade finance and the heightened risk of financial exclusion, and advocates that they be addressed through collaboration between policy-makers and the banking sector.
A number of broad policy recommendations stem from these analyses and are found in the individual contributions to this chapter. Not included here for the sake of brevity and accessibility to the general reader are detailed and specific recommendations. These can be found in background papers available from the authors...
The full text of this publication can be read on the World Economic Forum.
