Transparent and open international trading framework requires global digital standards to ensure data would be available to everyone
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.
The three elements needed to underpin global trade
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.
Act fast or miss out
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.
The great news is that so many people find the prospect of international trade standards incredibly exciting, particularly when it comes to levelling the playing field for smaller companies and individual traders who can find current arrangements both costly and highly complex. This year’s World Trade Symposium in New York will provide a perfect opportunity for forward thinking on this issue.
This article previously appeared on The Asset here.
Steven BeckHead of Trade and Supply Chain Finance, Asian Development Bank
Head of Trade and Supply Chain Finance, Asian Development Bank
Steven Beck is the head of trade and supply chain finance at the Asian Development Bank (ADB). In his ten years at the ADB, he has managed exponential growth of the bank’s trade finance program and implemented its first supply-chain finance business.
Also while at the ADB, Mr Beck initiated the Trade Finance Register of the International Chamber of Commerce (ICC), which compiles the only industry-wide statistics on trade-finance default and loss rates. These statistics underpinned changes to the Basel III regulations, freeing billions of dollars to support trade in emerging markets. He also created the annual ADB led study that, for the first time, quantified trade finance market gaps and their impact on economic growth and jobs.
He began his career with roles as a special assistant to the Canadian minister for international trade and as a senior manager at the Canadian Imperial Bank of Commerce (CIBC). He left CIBC to help design and implement a new multilateral development bank, the Black Sea Trade & Development Bank (BSTDB). In this capacity, he focused on Turkey, Russia and countries of the former Soviet Union. Following BSTDB, he took up roles as a senior consultant, including work with the United States Agency for International Development in southern Africa and with a start- up financial institution in Armenia.
Mr Beck is on the advisory board of the ICC Banking Commission and the World Trade Board. He is also a member of the World Trade Organization (WTO) Working Group for Trade Finance. He has an M.A. from the Fletcher School at Tufts University, USA and a B.A. from Queen’s University, Canada.