How Asia Can Strengthen Supply Chains and Avert Future Shocks to Global Trade
As the pandemic continues to affect global trade, governments need to take measures now to be better prepared for future disruptions.
The COVID-19 pandemic has provided hard-earned lessons about global supply chains, as disruptions led to shortages of critical goods from medical supplies to food. To speed up the recovery and prepare for future shocks, it’s crucial that governments take a number of steps. Two in particular stand out: fully implementing an existing global trade agreement, and using digital technologies to ease trade.
In 2017, the World Trade Organization (WTO) adopted the Trade Facilitation Agreement, intended to cut down the amount of red tape involved in moving goods across borders. Ramping up ongoing national efforts to implement this agreement could reduce trade costs for economies in the Asia and the Pacific substantially. On top of that, making full use of digital technologies could cut costs even further.
The pandemic has brought home the importance of trade facilitation for governments, businesses and households alike. Production and logistics constraints in the supply chain for personal protective equipment caused prices to rise sixfold for surgical masks and threefold for respirators, while the price of gowns doubled. The prices of staple foods such as rice and wheat jumped in several developing economies, negatively affecting household food consumption as well as grocery businesses, restaurants, and other retail food shops.
Why did international supply chains for medical supplies fail? First, geographic concentration of major manufacturers of vaccines and personal protective equipment made the supply chains vulnerable to localized shocks. Second, global shortages were worsened by export bans on medical supplies and key raw materials, which were continuing to varying degrees in more than 90 countries as of June 2021. Third, transportation was constrained by roadblocks and restricted movement, lower availability of transportation and freight containers, and limited workforce capacity due to illness.
The pandemic has brought home the importance of trade facilitation for governments, businesses and households alike.
Meanwhile, disruptions both at the domestic and international levels put pressure on food supply chains. Travel restrictions prevented local workers from moving to farms and processing and packaging facilities, many of which were closed due to quarantine requirements and sick workers. Governments banned exports of basic foods to ensure stable domestic supplies, while disruption at ports hindered distribution of imported foods. Cargo handling required additional time and cost; for example, health screenings were compulsory for crews, and disembarkation was prohibited. Ports were congested due to a lack of workers and transportation to clear cargo.
Many governments took steps to ease trade, and swift international support and cooperation became critical. Governments in Asia and the Pacific quickly implemented short-term measures, with some setting up dedicated agencies to manage trade facilitation during emergencies. Long-term measures were also put in place, such as greater use of national-level committees to coordinate trade facilitation during crises, and planning of resource allocation for future crises.
About two-thirds of the 20 members of the Asia-Pacific Economic Cooperation forum put in place new measures to ease trade, such as electronic submission of trade-related documents and information. Almost all of its members sped up simplification of customs procedures to cut congestion at major ports.
Governments need to build on these steps. A key priority should be to fully implement the WTO Trade Facilitation Agreement, which aims to expedite the movement, release and clearance of goods by improving transparency and governance, streamlining and modernizing border procedures, and enhancing the movement of goods in transit. A recent survey shows that implementation of the agreement is raising transparency, streamlining border formalities, and enhancing institutional arrangement and cooperation across the region. However, it also shows that implementation of cross-border paperless trade is lagging. Many bilateral paperless trade mechanisms remain in the pilot stage or in early development.
A closer embrace of technology would also spur global trade. This requires greater global and regional efforts to roll out digital technologies to enhance monitoring, market search, and the development of supply chains. While the pandemic has accelerated the transition to paperless trading, greater use of information and communication technologies is needed to streamline customs procedures and electronic exchange of information, implement national and regional “single windows” for document submissions and clearance, and introduce e-registration of travel documents. For instance, all members of the Association of Southeast Asian Nations have joined the ASEAN Single Window live operation, exchanging certificates of origin under the ASEAN Trade in Goods Agreement preferential tariff arrangement. However, this needs to be expanded to areas such as exchange of e-documents related to phytosanitary, animal health, and food safety certificates.
Digital platforms for trade finance can also benefit small borrowers and lenders. Fintech innovations such as the internet of things and blockchain can significantly cut the costs of due diligence and reduce inequalities in access to information. Other potential benefits of digital transformation include integrated transport management systems and digital logistics platforms.
The pandemic continues to roil global trade, making an urgent case for the embrace of greater efficiency. By taking the necessary measures, governments can be better prepared for future pandemics and other trade disruptions.
This blog post is drawn from the report Asia-Pacific Trade Facilitation Report 2021: Supply Chains of Critical Goods amid the COVID-19 Pandemic: Disruptions, Recovery, and Resilience