At the end of September, the World Trade Organization’s 15th 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.