There’s one big element missing before we can create a truly transparent, seamless and open international trading framework.
The basic tenets of international free trade, including open competition, greater efficiency, lower costs and stronger innovation are well understood. Most importantly, global trade has lifted millions out of poverty - and improved living standards all over the world.
Nevertheless, there are forces pulling trade to a more regional and local level, including the desire to reduce the carbon footprint left by global shipping; the interest by some industries to run a more local, thicker supply chain; and the rise in robots and 3D printing.
On the flip side, there’s a push to develop more sustainable transport; a view that thinner global supply chains mitigate the risk of dealing with the impact of local natural disasters – ever more present as the climate changes; and the fact that comparative advantage in some countries for some industries means that final products or components of products are cheaper and of higher quality when produced at a global level.
Meanwhile, there is huge growth in technological efficiencies, such as blockchain, which has the potential to revolutionise global trade.
But before we can create a truly transparent, seamless and open international trading framework, which includes everything from exporters, shipping, ports, customs, warehouses, finance and importers, there’s one big element that is still missing… digital standards.
There are three elements we should consider. The first is a set of rules and laws to govern digital communications and documents used in international trade. Most people don’t realise that these very basic building blocks are not in place, or that if governments adopted draft standards their actions could have a huge effect within just a few years.
The second element includes standards that cover the state of technology in trade. At the moment different technology projects can’t talk to each other. It’s as if different email systems couldn’t interact: imagine if you had a Gmail address but could only communicate with other Gmail users, rather than with those using Yahoo or Outlook. In the same way, component parts of the trade ecosystem – exporters, shoppers, ports, warehouses, banks, importers – can’t communicate seamlessly.
The third element is global acceptance of unique identifiers for data about who a company is and who owns it. Once global standards are in place, a huge amount of meta data will be produced and made available to everyone who needs it to buy and sell on a global basis. Without unique identifiers, finding relevant data about who to trade with will be akin to finding a single grain of sand in an ocean.
With these three elements in place, opportunities will open up for individuals, micro businesses and SMEs as well as corporates, enabling frictionless transactions to take place across the world at mind blowing speed and with huge efficiencies.
Technology exists to make this a reality, but we need to act quickly on building international standards. Without them, there’s a danger that regional frameworks will emerge to the exclusion of intra-regional, global trade. Once the trade eco-system, from exporters, shipping, customs, banks etc get on a particular platform, it’s difficult to move them off to different ones. If digital standards are developed on a regional basis it may preclude global trade and its benefits.
This is not to say that all supply chains need to be global. No, for many sectors going local and regional will make sense. But where comparative advantage and innovation can be found on a global scale, businesses should be able to pursue those advantages unfettered.
Instead of creating regional (digital) silos, it’s incumbent on the international community, including governments, banks, technology companies and those operating the supply chain to collaborate in developing common international digital standards for trade. Asia has an exciting future, largely driven by demographics and a growing massive middle class. Developed regions that don’t seek to develop international connectivity through global standards will miss out the most.
This is an abridged version of an article originally published as part of the World Trade Symposium.