A report released this week by the World Economic Forum (WEC) calls for deeper border reforms and an urgent implementation of the Bali trade accords announced last December by the World Trade Organisation (WTO) which is designed to accelerate cross border connectivity. It also states that the WTO is the best placed authority to provide the necessary guidance and set the norms for reform.
The report – Enabling Trade: From Valuation to Action – includes a section specific to the automotive sector which finds that major manufacturing investment for the automotive industry could be unlocked by making border crossing a trade priority.
According to the report, which has been drawn up in collaboration with management consultant firm Bain and Company, roughly $6 billion is spent each year by the automotive industry on inventory-carrying costs at borders. If redirected into product development it could fund up to six product launches a year, says the report.
It also highlights that simplifying parts re-export is an automotive trade priority, notably for pooled equipment.
“The report highlights an important new opportunity for trade liberalisation and economic growth, combining border and behind-the-border reforms to strengthen the competitiveness and job-creating potential of key economic sectors,” said Richard Samans, a managing director of the WEC. “Such a strategy has the potential to help countries and regions translate the recent WTO agreement on trade facilitation into tangible economic gains.”
Key findings of report
Six key findings were drawn up from discussions, involving a broad panel of industry experts including carmakers, parts suppliers and logistics providers.
The first relates to excessive border-crossing times and processes that can extend beyond customs to include lack of coordination between border agencies and lack of compliance with import-export standards. And, secondly, there are restrictions on the duty drawbacks in the re-export of parts and pooled equipment. Duty drawbacks allow exporters to obtain a refund on the customs duties, taxes and fees paid on the goods they import if those goods are subsequently exported. However, some governments restrict or impose tariffs or disincentives to pooling and reusing containers and pallets, resulting in less sustainable and more costly supply chains. The absence of duty drawbacks in the EU-Korea free trade agreement (FTA) continues to cause dispute.
These first two findings are identified as the top near-term priorities by the authors of the report because of their “high value-at-state” and potential ease of implementation. The WTO agreement in Bali last December is highlighted as an important first step.
“This issue is particularly important in emerging economies, a major focus of growth and investment for automotive manufacturers,” said the report’s authors. “Ensuring fast implementation of the agreement, while drawing on promised support and private sector expertise, will be crucial.”
The report also finds that there are unnecessary differences in regulatory safety standards between countries, as well as in environmental and technical norms. This situation imposes costly and lengthy technical adaptations on the carmakers and prevents them from selling standardised vehicles around the world, just one of the sticking points in current negotiations over an EU-US FTA (read more here).
The WEC report also states that lengthy WTO dispute settlements results in some countries violating its rules to temporarily take advantage of financial gains during the settlement process.
In addition, there is a general lack of visibility on trade and investment when it comes to local regulations on non-tariff barriers. There is no single, global automated tool that could be made available to importers and exporters, which cold help identify the most up-to-date information.
Finally, even within large free trade areas, such as the EU, local tax obstacles to trade persist.
The report recommends that the WTO should review the local trade requirements and investment incentives used by its members and find ways to improve visibility and establish universal standards for trade, including rules for foreign direct investment.
“A central authority is needed to provide guidance and set norms,” says the report. “The WTO is ideally placed to fulfil this role.”
It also recommends that the WTO support bilateral dialogue to address issues such as different safety and environmental standards, as well as act as a forum for discussions amongst members and the automotive sector over border management problems and the issues of duty drawback.
“The industry’s global nature is beginning to translate into a more unified industry voice for streamlining supply chains and reducing trade frictions,” conclude the authors. “While local workforce demands for protection are still heard, the consensus is growing to at least debate the issues openly, unencumbered by tangential barriers and restrictions.”