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Business Desk

The Daily Star

Publication Date : 25-01-2013

Reducing supply chain barriers could increase global GDP (gross domestic product) and world trade much more than reducing all import tariffs, the World Economic Forum in collaboration with Bain & Company and the World Bank said in a report yesterday.

“Enabling Trade: Valuing Growth Opportunities” finds that if all countries reduce supply chain barriers halfway to global best practice, global GDP could increase by 4.7 per cent and world trade by 14.5 per cent, far outweighing benefits from elimination of all import tariffs, according to a statement.

Completely elimination of tariffs could increase global GDP by 0.7 per cent and world trade by 10.1 per cent.

Even a less ambitious reform that moves countries halfway to regional best practice could increase global GDP by 2.6 per cent and world trade by 9.4 per cent, according to the statement.

Economic gains from reducing supply chain barriers are also more evenly distributed across countries than the gains associated with tariff elimination.

Regions that stand to benefit in particular under these scenarios are sub-Saharan Africa and Southeast Asia. Such large increases in GDP would be associated with positive effects on unemployment, potentially adding millions of jobs to the global workforce.

According to the report, lowering supply chain barriers is effective because it eliminates resource waste and reduces costs to trading firms and, by extension, lowers prices to consumers and businesses.

Supply chain barriers can result from inefficient customs and administrative procedures, complex regulation and weaknesses in infrastructure services.

A supply chain is the network of activities involved in producing and getting a product to consumers, and spans the manufacturing process as well as transport and distribution services.

The report, based on analyses of 18 case studies, recommends that governments create a focal point to coordinate and oversee all regulation that directly impacts supply chains to reduce inefficiencies.

Public-private partnerships to undertake regular data collection, monitoring and analysis of factors affecting supply chain performance are also recommended along with supply-chain-centred approach to international trade negotiations.

The report was initiated by the Forum's Global Agenda Councils on Logistics and Supply Chains and Global Trade & FDI.

“The Forum's Enabling Trade programme has endeavoured to highlight the fundamental attributes that enable a country to facilitate trade,” said Børge Brende, managing director of World Economic Forum.

“The case studies show that countries can lose their competitive advantage in terms of factor costs, if the costs associated with their supply chain barriers are high,” said Mark Gottfredson, partner at Bain & Company.

“The lesson for companies is the importance of understanding supply chain barriers and how the associated costs and delays can erode other sourcing advantages.”

“Supply chain barriers are more significant impediments to trade than import tariffs,” said Bernard Hoekman, director of the World Bank's International Trade Department and chair of the forum's Global Agenda Council on Logistics and Supply Chains.

“Lowering these barriers will reduce costs for businesses, and help generate more jobs and economic opportunities for people.”