We already know trade works for our businesses—but trade also fosters growth, development, and poverty reduction around the world while integrating the global economy to promote security, investment, and innovation. From September 30-October 2, the World Trade Organization (WTO) showcased how trade makes the world a better place at the annual public forum, titled, appropriately, Trade Works! This year, the WTO also took the opportunity to celebrate its 20^th anniversary, as well as make a concerted effort to reach out to the business community. 

This year’s event brought more than 9,000 stakeholders to Geneva from industries ranging from apparel to agriculture to pharmaceuticals to services—plus the international governments and organizations involved in creating trade policy. Most everyone agreed that trade does work. After all, as Carsten Dannöhl, the EU Government Affairs Manager for Caterpillar, explained during a session discussing the question, trade is tied to more than 30 percent of the U.S. GDP, and supports 1 in 5 U.S. jobs.

USFIA members know global value chains are critical to making trade work for brands, retailers, and consumers, and this year’s event placed a special focus on the role of GVCs in fostering growth. In fact, the entire event kicked off with a video showcasing the value chain to produce an athletic shoe—from the shoe designer to the final consumer.

In a session hosted by the Foreign Trade Association (FTA) of Brussels, who we’ve collaborated with on Transatlantic Trade & Investment Partnership (TTIP) advocacy, several speakers from government and industry described GVC success stories and how the globalization of manufacturing has many winners, including those in poverty. However, mushrooming agreements and standards and the high level of complexity of rules hinder the full potential of trade. What do policymakers, and specifically the WTO, need to do?

Marc Vanheukelen, EU Ambassador to the WTO, said that global trade policy needs to create an environment that’s attractive to investors, with open economies, reduced tariff and non-tariff barriers, and transparent rules. The WTO negotiating arm is in poor condition, as evidenced by the Doha Round, but we’re seeing a shift with the Trade Facilitation Agreement (TFA)—and in fact, on the second day of the forum, the European Union ratified the agreement, bringing 28 more members to the tally towards implementation. (The TFA will be implemented when 2/3 of WTO members ratify the agreement.) In this era of GVCs, services and facilitation account for as much as 50 percent of the final cost of a good, so the European Union is pushing hard to liberalize services, which will also help developed countries trade more with least-developed countries.

To illustrate the importance of GVCs, Katarina Maaskant, Head of Public Affairs for IKEA Group, showed the audience a model of an IKEA wardrobe from Germany and purchased in Belgium. The wardrobe has 30 different materials components from 11 countries; the IKEA Group’s wood alone comes from 24 countries. Even a “simple” product like a wooden wardrobe is manufactured with the help of a complex value chain.

GVCs not only help companies, but entire countries, too. Shin-Yuan Lai, Ambassador of Taiwan, Penghu, Kinmen and Matsu to the WTO, explained that trade accounts for 73 percent of Taiwan’s GDP. By promoting growth through export expansion, Taiwan has accumulated foreign exchange reserves up to USD $426 billion, and experienced an average growth rate of 6.3 percent from 1970 to today while inflation remained at average of 2.5 percent over the same period. Additionally, the country has a high per capita GDP of USD $22,000, nearly 100 percent literacy rate, and the second-highest gender equality ranking only after the Netherlands. Taiwan’s success in transforming from a rural agricultural economy to a modern industrial one, she said, is attributed to smooth integration in GVCs.

The discussions on GVCs led to discussions on rules of origin—and why rules of origin matter for companies manufacturing apparel and consumer products.

In a session titled “Why Rules of Origin Matter,” featuring speakers from Nike and Puma, Stefano Inama of the United Nations Conference for Trade & Development explained that when every country can make its own rules of origin, it’s difficult for businesses to expand globally—and furthermore, today’s rules of origin do not reflect the reality of GVCs, where most of the cost of producing the good is related to design, distribution, and marketing. However, lenient rules of origin that match value chains create trade—as seen with the EU’s Generalized System of Preferences (GSP) allowing duty-free imports on bicycles from Cambodia leading to an increase in bicycle imports from the country.

Jeff Whalen, Senior Counsel for Customs & International Trade for Nike, said that some rules of origin drive economic activity to LDCs, regulate fair trade, or promote information to consumers, but there is also a dark, punitive nature to others that promote protectionist agendas and stop certain products from being imported. Furthermore, rules of origin don’t drive manufacturing decisions, especially in the sporting goods industry; access to raw materials and a skilled work force, labor laws, consumer desires, social and environmental performance, and intellectual property protection do. And punitive rules of origin can lead to absurd results, where even as much as 95 percent of a shoe could be manufactured in Mexico but could still not meet the NAFTA rule of origin due to the complex rules.

As noted, the WTO also took time to reach out to the business community. During a debate on how to make trade work for business, WTO Director-General Roberto Azevêdo discussed how the WTO has taken steps to make trade work for business, especially with the Trade Facilitation Agreement (TFA) concluded at the Bali Ministerial in December 2013. The TFA is about streamlining and simplifying customs procedures to reduce the cost of trade by up to 15 percent, and will bring a higher level of predictability to customs processes, he explained. Now, he wants to focus on how the trading system will work for small and medium enterprises in particular—but the WTO needs the support of the business community, and Azevêdo is confident that if the WTO and business join forces, they can achieve a great deal.

The point was further emphasized during an invitation-only meeting between business representatives and the Information & External Relations Division of the WTO. They explained that there could be three possible scenarios at the Nairobi Ministerial in December: reach agreement on the Doha Round (unlikely), package of reforms for LDCs (within reach), or nothing. The second option would be a significant outcome, but the WTO wants input from business on what to do next, especially since there is the thought that failure in Nairobi could be the end of the Doha Round. The WTO recognizes that there has sometimes been a chasm between the WTO and the business community—mainly because the WTO moves more slowly than business—but they are asking for business to support the TFA and the Information Technology Agreement (ITA). There will be a window of opportunity in 2016 for things to change, if business can engage. In particular, the WTO invites business groups to come to Geneva to meet and discuss issues, and they can even put together a full-day agenda for groups. Additionally, they encourage continued collaboration on joint association/business group letters and other outreach on key issues, because trade ministers always look for reasons to say “yes,” since they have many stakeholders telling them to say “no.”

So, what do policymakers need to do to continue to make trade work—and make it work better? Speakers across all industries had similar perspectives: create rules of origin that recognize the critical steps in the GVC instead of the final product or consumer, harmonize rules of origin and other regulations, eliminate tariffs especially on intermediate goods and services, eliminate non-tariff barriers, and eliminate policies that may have originally had good intentions but now just serve as disguised protectionism.

In the meantime, USFIA will continue to work on our mission to eliminate barriers to trade and ensure the industry’s voice is heard.

By Tara Donaldson

Ahead of her own testimony Thursday, United States Fashion Industry Association president Julia K. Hughes said complex supply chains will preclude U.S. brands and retailers from being able to respond to the tariffs without facing setbacks.

“Talking with sourcing executives, they say that it takes anywhere from two to five years to identify and approve a new vendor. That is because we are a long way from the days when apparel could be made any place there were workers and a sewing machine,” Hughes said. “That means that companies are faced with no real alternatives to sourcing in China. But an increase in costs of 10 percent or 25 percent will have a negative impact on sales and no jobs here in the U.S., plus, of course, potentially derailing the economy from what we hope will be a positive holiday selling season.”

Click here to read the entire article on the Sourcing Journal website.

From USA-ITA OFF THE CUFF for February 15, 2013

On February 11^th, USA-ITA attended an event on the future of the World Trade Organization (WTO) at the Center for Strategic International Studies (CSIS) in Washington, D.C. The event featured a keynote by Anabel González, Foreign Minister of Costa Rica and the leading candidate to succeed Pascal Lamy as Director-General of the WTO. 

The event started with remarks from González, who has served as the lead negotiator on Costa Rican trade and investment issues since May 2010 and successfully led Costa Rica into the global economy. She also served as Director of the Agriculture and Commodities Division of the WTO, and is in the lead to serve as the next Director-General of the WTO. González outlined her views on trade more generally, which she says is key to fostering growth and economic development around the world, especially in less-developed nations. She sees trade liberalization as the means, not the end, to prosperity, productivity, and innovation. 

González’s vision for the WTO is two-fold: to open new markets, and to govern rules for trade among its members. While she notes that progress in Doha has been “slow,” she has “new, cautious optimism” about opportunities to reinvigorate the WTO as a negotiating forum based on progress seen in Geneva. But, to do this, she says, no topic should be taboo for the WTO to discuss—including trade, investment, climate change, and the importance of global value chains, to name a few. Ultimately, though, because the WTO is a member-driven organization, she believes its role should be guided by its members, and if she becomes the Director-General, she would work closely with the Secretariat and members.  

Following her remarks, CSIS Senior Adviser Scott Miller led a panel discussion with Linda Menghetti Dempsey, Vice President of International Economic Affairs at the National Association of Manufacturers, and John Murphy, Vice President of International Affairs at the U.S. Chamber of Commerce. When asked about the hope for agreements such as an international services agreement or customs and trade facilitation talks, González again expressed that she sees strong potential in the coming years. She also sees a role for preferential trade agreements in the global system, but believes that the WTO should remain the stronghold to monitor these agreements between members, as well as promote convergence and let members know about other agreements.

Finally, González discussed Costa Rica’s experience with economic growth, noting that trade was critical. All countries, but developing countries in particular, should note that being open to international trade and foreign investment and taking a pragmatic approach to trade policy can lead to economic growth and prosperity. And these developing countries can benefit most from the WTO and its dispute settlement program, which delivers rulings based on the case merits and not the size of the members.

You can view the entire discussion on the CSIS website.

How do we continue to open trade and eliminate trade barriers, while ensuring that those producing our products are integrated into the system and treated fairly?

 The World Trade Organization (WTO) Public Forum in Geneva, titled “Why Trade Matters to Everyone,” examined this question, with high-level officials and in-the-weeds trade wonks providing ideas on how to open trade while promoting equality in global value chains, especially in Africa and the rest of the developing world.

Roberto Azevêdo, Director General of the WTO, kicked off the opening plenary session by noting that trade is changing, and fast. Today, the biggest supporters of trade are located in developing countries, which are increasingly emphasizing trade in their development plans.

Ban Ki-moon, Secretary General of the United Nations, discussed the need for open trade, though he cautioned that we must ensure that trade is fair and benefits all. Using Korea as an example, he said that trade promotes growth—and in fact, where trade is absent, economies cannot grow. “An ounce of trade equals a pound of aid,” he said.

However, he added, it’s important that we promote trade that benefits as many people as possible, and especially work to integrate Africa and other Least-Developed Countries (LDCs) through open, non-discriminatory trade. The UN’s priorities include opening trade and providing Duty-Free-Quota-Free (DFQF) access for LDCs to enter new markets, as well as addressing protectionism and red tape while ensuring that developing countries have the infrastructure to support robust trade. The Doha Round is the best route to fair, better, open trade, he said, and if managed well, then trade can be a key driver of development.

The opening session continued with an agreeable debate about how trade and development go hand-in-hand. Guy Ryder, Director-General of the International Labour Organization (ILO), said it’s important to remember that people are behind our products. We know the aggregate effects of trade liberalization are more jobs and more economic opportunities, but there are still winners and losers in the system. While trade liberalization is vital to development, it needs to have other interventions—and the Rana Plaza tragedy in Bangladesh brought this issue to light. While trade is critical to bring people out of poverty, we still need to look at the conditions of global value chains and develop rules.

In the course of the discussion, Ryder added that we want trade to expand, but we must take the holistic view that trade is good because of what it provides to people. The other speakers—including Amanda Long of Consumers International and Robert Smith, Executive Editor of NPR’s Planet Money, who traced the value chain of a t-shirt—agreed.

The discussions that followed during the three-day forum attempted to put these pieces together and find ways to create open, equitable, and non-discriminatory trade.

Challenges & Solutions

There are many challenges to opening trade, especially with developing countries, ranging from trade policy challenges to the lack of infrastructure in the developing world to unsafe working conditions. The forum included many discussions on these challenges, as well as ideas for solutions.

Trade Policy

Both the United States and European Union have worked to open trade with developing countries through various trade preference programs that provide DFQF market access. While the EU has many programs still in place, the United States’ Generalized System of Preferences (GSP) program expired in July 2013, and the African Growth & Opportunity Act (AGOA), which has been successful, is scheduled to expire in less than a year.

During a session titled “Africa’s Post 2015 Trade Futures,” Mwangi Kimenye of the Brookings Institution’s Africa Growth Initiative said there is discussion on whether to renew this landmark legislation, and if any changes should be made. The program was not intended to be renewed, he said, and though it’s grossly underutilized by non-oil importers, it has still led to growth and development.

He outlined several options, such as not renewing it and focusing on GSP, renewing it and expanding eligible products or countries, restructuring to resemble the EU’s Economic Partnership Agreements (EPAs) in the region, or waiting for the Transatlantic Trade & Investment Partnership (TTIP) to create integration. With all factors considered, however, he concluded that the program should be renewed, with Bangladesh and other poor countries included, because without renewal, we’ll see declines in trade and wages. And, he added, renewal needs to come quickly, or orders will stop.

Infrastructure

The second day of the forum opened with another plenary session titled “What Trade Means for Africa.” Azevêdo noted that Africa has the most positive view of trade. The region’s impressive growth has been supported by trade in commodities, but there remains a huge gap in equality and economic growth, particularly in non-oil countries, as well as health and security issues. Still, by opening trade, expanding the WTO’s Aid for Trade, implementing the Trade Facilitation Agreement, and making progress on the Doha Round, he believes we can create open but equitable trade.

Axel Addy, Minister of Commerce and Industry for Liberia, discussed how trade could help his country continue to grow. Though Liberia is inexperienced in terms of infrastructure and security, the country does have a young, educated population, an entrepreneurial culture, and a resiliency that will enable them to overcome the Ebola epidemic and continue to move forward.

The speakers agreed the investment in infrastructure is key to expanding open, fair trade. Paul Brenton, Lead Economist for the World Bank Group’s Trade & Competitiveness Global Practice, explained that there is a lot of potential for African trade, especially regionally, but barriers remain. Those barriers include infrastructure like border operations and paved roads, which help connect the poor to global markets, as well as policies and procedures at the border and production capacity. But, we need to make sure these improvements still benefit the poorest, especially the hundreds of thousands of small traders, many of whom are women. Minister Addy agreed, noting that infrastructure in energy, transportation, and roads will help reduce the cost of doing business in Liberia. Frank Matsaert, CEO of TradeMark East Africa, which works to promote poverty reduction and economic growth in the region, and Issam Chleuh, Founder and CEO of Africa Impact Group, which leverages investment capital in Africa and helps companies enter African markets, both agreed on the need for infrastructure, as well as regional integration.

Working Conditions

Another session focused specifically on working conditions in the Bangladesh garment sector, and provided ideas for solutions. Titled “Bangladesh Garment Factory Tragedy to Happy Worker: An Initiative for Balance of Benefits in Global Trade,” the session was led by the Institute of Developing Economies-Japan External Trade Organization (IDE-JETRO), which researches Japan’s trade with and investment in developing regions.

The session focused on a proposal by Dr. Abu Shonchoy, Research Fellow at IDE-JETRO. Originally from Bangladesh, Dr. Shonchoy researches development and labor economics as well as public finance in developing regions, focusing primarily on Bangladesh. His “Happy Workers Initiative” is still in development, but he hopes to gain support from all stakeholders to improve the working conditions in Bangladesh, which did not receive much global attention until the Rana Plaza tragedy.

Dr. Shonchoy explained how the rapid growth of factories in structurally unsound buildings, combined with the political power held by the Bangladesh Garment Manufactures & Exporters Association (BGMEA) and factory owners and the government’s poor capacity to enforce safety standards, led to poor conditions. Meanwhile, he said there has been a “race to the bottom” with pressure on factories to reduce costs rather than improve conditions.

After the tragedy, we witnessed a “blame game” among all stakeholders, he said–the government needs to be more proactive to ensure compliance, the BGMEA needs to take a leadership role on compliance, and global brands should improve their minimum safety compliance standards and work together to develop one standard, among the complaints. He noted that brands divided into two “rival” camps—the Alliance for Bangladesh Worker Safety in North America, and the Accord on Fire & Building Safety in Europe—but while they have had some achievements, he noted, there is a need for a consolidated effort and especially a solution for what to do when factories are closed after inspections.

He hopes his “Happy Worker Initiative” could bridge the gap between producers and the end consumers, who could drive the quest for better labor conditions. His initiative, which he says should be monitored by an independent third party, perhaps an established NGO, would take three steps:

1. First, verify the working conditions in the factory with a third-party local inspector.
2. Depending on the conditions in the factory, set a goal for the factory, whether it’s building safety, fire safety, or worker safety and well being.
3. When the factory meets the goal, it will be able to use the “Happy Worker” sticker, which the consumer can scan with a smart-phone to verify that the garment was indeed made by safe and happy workers by giving them information about the factory, the third-party monitor, and the fact that the brand paid 10 cents extra to the initiative. Each sticker can only be used once, and after a garment is purchased, the code can never be used again to prevent corruption of the initiative.

The initiative would be funded by the 10-cent payments, which Dr. Shonchoy said should be funded by the brand and not added to the price of the garment. This money will be redistributed to the factories (50%) to make improvements; to a workers’ welfare trust (15%) to develop a hotline, insurance, and other programs; and to the monitoring authority (35%), which will focus on consumer education.

Other speakers addressed whether such a program could work, from the technical issues with a sticker to ensuring that the program is working. Masaki Wada, Executive Director of Energetic Green, who works with brands on sustainability initiatives, said that it’s a good idea but unlikely to be workable due to labeling and hang tag issues, though he could see small and medium-sized brands leading the effort. Mari Nakamura of IDE-JETRO concluded that consumers are ready for the program, though it’s important to note that the premise is that consumers will not pay more for their garments. Edgard Rodriguez of the International Development Research Centre in Canada applauded the private sector, and particularly Nike and Gap, for the work they’ve already done, but noted that for the program to work, we need more research into whether inspections are actually happening and go beyond inspections to provide an incentive for all stakeholders to collaborate.

While no brand or retailer sourcing in Bangladesh participated in the discussion, USFIA noted during the Q&A period that while the initiative is certainly interesting, there are some challenges as noted by Mr. Wada. In addition, it’s important to address the good work already being done by brands and retailers in the Alliance in particular, which has already achieved many of the initiative’s goals such as inspections of 100% of members’ factories, development of programs like a worker hotline, and payment of wages to displaced workers when factories are closed. There is considerable collaboration already occurring, and this initiative should seek to work with the Alliance and the Accord and other stakeholders to further enhance that collaboration rather than start a completely new initiative. 

Success Stories

While many discussions focused on challenges and solutions, others focused on trade success stories in the developing world. “Global Value Chains: What Economic Footprint in Sourcing Countries?” sponsored by the Foreign Trade Association (FTA) in Brussels and EuroCommerce, focused on how global value chains lead to increased trade and economic development.

Global Value Chains Work

Nguyen Trung Thran, Vietnam’s Ambassador to the WTO and UN, explained how Vietnam is a global value chain success story. Vietnam is an essential player in global value chains, with primary exports including oil, coal, textiles, and shoes, and imports including machinery, fertilizer, and other materials for production. And foreign direct investment has played a crucial role in the development of Vietnam, which has socio-political stability, a dynamic economy, a young, pro-business population, and pro-growth and pro-integration leadership. To continue this success, the Trans-Pacific Partnership (TPP) is a priority, as is a free trade agreement with the EU. While challenges remain—infrastructure, bureaucracy and corruption, and a lack of educated and skilled workers among them—Vietnam has come a long way thanks to GVCs and the developed world’s investment in the country.

And Christian Henn, an economist at the WTO, explained why, noting that as countries move through GVCs, beginning with farming inputs to manufacturing textiles and apparel to manufacturing other products, poverty declines and development expands. There is a certain quality level required for global integration, and countries upgrade products or processes to get additional value add, which leads to investment from multinationals because they will get better and cheaper products, and the cycle continues, leading to greater development. The flipside is that trying to build an entire supply chain at home will make a country uncompetitive on the global scale. Martina Lodrant, who coordinates trade policy strategy at the European Commission, added that the fragmentation of GVCs actually provides better opportunities for developing countries to upgrade.

That’s not to say that GVCs don’t have challenges, too, as the Rana Plaza tragedy demonstrated. Joerg Hofsteter of the University of St. Gallen and the International Forum on Sustainable Value Chains said that 85 percent of problems in global value chains come from upstream suppliers that companies don’t know. To improve compliance across the chain, it’s important to identify everyone operating in the chain and set targets for improvement.

Innovation Works

And as global value chains lead the developing world to greater economic integration, so, too, does technology. Moderated by Stuart Harbinson, “Innovate Africa: Perspectives from the Private Sector” focused on success stories of how businesses are getting into Africa and consequently paving the way for the increase in trade and economic welfare in the region. The session looked at several innovative success stories, including the cotton sector and agricultural biotechnology in Burkina Faso, and health care and wireless communications in Nigeria.

Dehu Dakuo, Director of Cotton Production for La Société Burkinabè des Fibres Textiles (SOFITEX), and Quattara Zanga Mamadou, General Secretary of the National Union of Cotton Producers and a cotton producer himself, explained how new biotechnology enabled them to increase yield and improve working conditions. Developed by Monsanto, a U.S.-based sustainable agricultural biotech company, genetically modified cotton seeds have led to decreases in insecticide and water use, and increases in productivity and worker health, with a drop in medical treatments for cotton farmers exposed to insecticide. As a result, they have seen greater productivity and yield, and happier workers who are better able to contribute to the global value chain.

Meanwhile, Agboponto Soglo Bienvenu, Senior Manager of Government Affairs for Qualcomm, a telecom company headquartered in San Diego, explained how mobile devices have changed health care in Nigeria. Of the 3 billion internet users around the world, 2/3 are based in the developing world, primarily accessing the internet by mobile connections. Vecna Cares’ CliniPAK software and 3G-enabled tablets powered by Qualcomm Snapdragon processors streamline and automate the in-field data capture and reporting process and help improve health outcomes in midwifery in rural Nigeria.

How can the private sector of the developed world continue to see successes like these? Leigh Gunkel-Keuler, Head of Corporate Affairs for Pfizer in South Africa, stressed the need for local partners, sustainable business, identifying and engaging key stakeholders.

On November 26, 2018, the United States Fashion Industry Association (USFIA) joined a multi-industry association letter to the U.S. Department of Homeland Security (DHS), U.S. Customs & Border Protection (CBP), U.S. Treasury, and the Office of the U.S. Trade Representative (USTR) urging the Administration to block the World Customs Organization’s plan to implement a customs duty moratorium on electronic transmissions. Led by the United States Council for International Business, the letter says the action “is contrary to the long-standing agreement by World Trade Organization (WTO) members not to apply customs duties to cross-border electronic transmissions and prejudices ongoing discussions at the WTO and the Organization for Economic Cooperation and Development (OECD). This action will harm U.S. goods and services exporters of all sizes in nearly every sector and threaten American jobs.” The letter is available here.

The United States Fashion Industry Association (USFIA) joined with international business and retail associations in sending a statement to World Trade Organization (WTO) Director General Roberto Azevedo and other world leaders to show continued support for the WTO agenda. The letter calls on the leaders to “safeguard to the WTO system,” “progress on agriculture and fisheries subsidies,” and “take account of the new trade environment.” The statement is available here. The 11th WTO Ministerial takes place next week in Buenos Aires.

This month, the United States Fashion Industry Association (USFIA) joined letters to each of the World Trade Organization (WTO) countries that have not yet ratified the Trade Facilitation Agreement (TFA). The letters were organized by the National Association of Manufacturers (NAM) and are available here. The last countries to sign the TFA in late July were Mexico, Peru, and Saudi Arabia, bringing the total to 89; 2/3 of WTO members are required to ratify the agreement for it to go into effect.

At the end of September, the World Trade Organization’s 15^th Public Forum took place in Geneva, Switzerland, and we were there to get the latest news on global trade as well as insights from government and business leaders on how trade can be more inclusive, especially for small businesses, women, and young entrepreneurs. With more than 2,000 stakeholders registered for the event—a new record—it’s clear that the world is worried about the “growing anti-globalization movement,” as EU Trade Commissioner Cecilia Malmström said during the opening session.

New Reports Show the Need for Inclusive Trade

During the Forum, the WTO launched the 2016 Annual Report with new trade projections, as well as the 2016 World Trade Report, Leveling the Trading Field for SMEs. The 2016 Annual Report found that world trade is expected to grow more slowly in 2016 and 2017 than initially forecasted, and WTO Director-General Roberto Azevêdo said this is the slowest growth since the 2008 financial crisis. “The dramatic slowing of trade growth is serious and should serve as a wake-up call. It is particularly concerning in the context of growing anti-globalization sentiment,” he said. “We shouldn’t try to shut trade down; we should be redoubling our efforts to make sure it is truly inclusive.” (You can read more about the reports in the Fashion Intel & Analysis for September 27, 2016.)

EU Trade Commissioner Cecilia Malmström added that “we need a new kind of trade policy” because people are not feeling included in trade, which contributes to the “growing anti-globalization movement.” The public wants to know what’s in trade agreements, and how to use them, so the WTO and governments need to do a better job of engaging with stakeholders to make sure everyone is included in the process. Additionally, she said, trade needs to be “value based”—not lowering standards, or taking away protections for consumers or the environment, or forcing government to privatize public services.

To illustrate the need to make trade more inclusive, attendees heard from Roy Ombatti, Founder of African Born 3D Printing in Nairobi, which manufactures affordable, quality 3D printers made from recycled materials and locally available parts. The company creates custom shoes for people who are suffering from sand flea infections, which make mass-produced shoes too painful to wear. However, both the printer company and the shoe company have had to turn away international customers because shipping is a challenge. Ombatti made the case for lowering trade barriers around the world, to allow SMEs to compete on a global scale. “I’m not asking for pity or money,” he said. “We have a quality product that speaks for itself. Give us a fair chance and the support to trade internationally.”

Goods Are Services in Boxes: The Future of Mode 5

The Foreign Trade Association (FTA) in Brussels led a discussion on one way to make trade more inclusive: by recognizing the fact that almost all goods contain services. In the existing multilateral framework, trade policy is governed by two pillars: Trade in Goods (GATT) and Trade in Services (GATS). Today, however, a high percentage of the value of the “goods” actually come from “services”—or, to put it another way, goods are services in boxes. Consider, for example, cars with software, or a smartphone, or high-tech athletic shoes. And more than 25 percent of goods imported in the United States, and 35 percent of goods imported in the European Union, are this type of product.

However, when you package these services “in a box,” or as part of a good, they are subject to higher tariffs and different non-tariff barriers than if they were traded as a service under GATS rules. Companies can remove the value of the services from the value subject to duties—if they can prove the services were conducted in the country of import. But not all services, including software, are included. This will continue to cause problems—and high tariff barriers—as we continue to explore 3D printing, robotics, and wearable tech.

There are calls for “Mode 5,” which would embrace the global value chain not only for goods, but also for services, especially since services are the fastest-growing exports from developing economies. Karl Sedlmeyer, Vice President of Global Supply Chain Services for adidas, said he is interested in Mode 5 because adidas is a globally organized company with distant value chains, and they are embedding more technology, intelligence, and software into their products.

Talal Abu-Ghazaleh, Chairman and Founder of TAG-Org, a professional services firm in Jordan, reminded us that the WTO was created in an internet-free world. He concluded that the WTO, and trade policy generally, needs to adapt to new realities—such as the fact that Kodak went bankrupt after holding 85 percent of market share, Uber is the largest taxi company in the world but owns no taxis, and 50 percent of workers in the United States are online employees.

Inclusive Trade in the Global Sporting Goods Industry

The World Federation of Sporting Goods Industry (WFSGI) dove deeper into why trade policy needs to address the realities of business and products today, and provided recommendations for how the sporting goods industry can make trade more inclusive.

Ingrid Persson, Manager of International Trade, EMEA Government and Public Affairs for Nike, said complex rules, particularly rules of origin, inhibit inclusive trade. The complexity of the rules contributes to low utilization rates of free trade agreements, with a disproportionate burden on SMEs, who don’t have the resources to participate. For example, the Trans-Pacific Partnership (TPP) rules for parts and components, not to mention the yarn-forward rule of origin, disincentivizes the inclusion of SMEs from the value chain. Meanwhile, services account for 13 percent of the global GDP, and today, a significant percentage of the value of products like athletic shoes comes from services, especially research, design, and development. This is how Nike keeps its competitive advantage—but the current trade rules don’t recognize this reality. In particular, services should be duty free regardless of where the physical product is imported, which would not only include more SMEs in trade, but would also boost innovation. Mode 5 would help.

Persson concluded that we need to find a way to make sure trade agreements are compatible and match business realities—and the WTO has an opportunity to deliver, with the Trade Facilitation Agreement (TFA).

Other speakers addressed other challenges that impact inclusive trade. Kristine Marvin, Vice President and General Counsel for Timberland at VF Corporation, said that for developing nations to be fully included in trade and attract high quality investment, they must have effective systems for protecting intellectual property as well as responsible sourcing practices. These systems must be proactive and reactive, as well as well defined, transparent, and comprehensive. The industry should encourage developing nations, and importantly, share best practices, to ensure developing nations can participate in value chains.

Aster Kamp, Manager of Regulatory and Ethical Affairs/Compliance for EMEA for Asics, discussed e-commerce. The digital single market provides better access for consumers and businesses, and with the right conditions and a level playing field, innovative services can flourish. The European Commission is looking into the e-commerce sector and recently published an inquiry. The preliminary findings confirm the growing significance of e-commerce, especially for price transparency and competition, and examine at practices that may prevent consumers from accessing greater choice and lower prices when using e-commerce for cross-border shopping. Kamp said companies should pay attention to this inquiry if they are participating in cross-border e-commerce.

Digital Customs for Improve Border Management and E-Commerce Opportunities

The American Association of Exporters & Importers (AAEI) and the World Customs Organization (WCO) hosted a discussion on how improved customs management can also make trade more inclusive, especially in the e-commerce world.

Ana Hinojosa, Director of Compliance and Facilitation at the WCO, said e-commerce drives innovation, economic competitiveness, and growth—and also reduces barriers for small and micro enterprises by allowing them to become part of global value chains. Compared to trade generally, e-commerce is growing rapidly—as much as 18-20 percent. For this to continue, we need to harmonize customs operations, and customs administrations need to “get behind digitization.” The WCO is creating a working group on e-commerce, and the inaugural meeting took place in Brussels in September, with participants including Amazon, eBay, and Alibaba. They will discuss opportunities and ways to overcome challenges, including access to banks, and how to collect taxes in a way that doesn’t hamper the movement of commerce.

Kevin Willis, Director of Global Trade Compliance for Amazon, provided some advice, especially to governments, based on his experience. Customs agencies are increasingly faced with managing a new importer—the end consumer. This presents challenges because big companies have compliance resources, but the end consumer does not—and creating an easy, quality experience for the end consumer is Amazon’s focus. “I don’t want special rules, I just want simpler rules,” he said.

And governments are reacting to the growth of e-commerce. There’s a tendency to say, “let’s control it,” but governments must find a balance between the need to collect revenue and protect consumers, and allowing trade to flow freely. Willis suggested that part of the solution has to be the flow of electronic information, with global data standards and enhanced transparency on both sides of the transaction. “E-commerce is not the future of trade, it’s already here, and it’s thriving,” he said, adding that we need to embrace “speed, simplicity, harmonization, and inclusion.”

Norm Schenk, Vice President of Global Customs Policy & Public Affairs for UPS Supply Chain Solutions Inc., agreed, noting that countries should promote e-commerce because it drives economic growth. SMEs pay the heaviest price for cross-border facilitation, because shipments are lower value, but customs agencies need to recognize that it only takes 22 packages a day to support a new job, so they would be wise to facilitate those packages. By lowering the de minimis, implementing simple manifest declarations, and simplifying returns, among others, customs agencies could ensure compliance while promoting growth.

All the speakers agreed that they hope to see the Trade Facilitation Agreement (TFA) soon.