This report focuses on supply chain barriers to trade. These barriers are more extensive than those that are traditionally considered, as they include what happens both before and after goods cross the border.
The barriers described here are based on the definition used by the Global Enabling Trade Report published annually by the World Economic Forum. The definition includes barriers related to the following four areas:
- Market access: The extent to which a country’s policy framework welcomes foreign goods into the country’s economy and enables access to foreign markets for its exports
- Border administration: The extent to which border administration facilitates the entry and exit of goods
- Transport and communications infrastructure: The extent to which a country has the transport and communications infrastructure necessary to facilitate the movement of goods within the economy and across the border
- Business environment: The quality of a country’s government, including the regulatory and security environment affecting the business of importers and exporters active in the country.
Though tariffs affect market access, they are not the main focus of this report and the case studies.
The barriers considered could be solved with appropriate policies. This does not mean that the solutions would be simple, easy or cheap. For example, removing infrastructure barriers could mean creating a policy that facilitates extensive investment in infrastructure.
The report tries to understand how barriers affect the different stakeholders in international trade from a supply chain perspective. Since trade barriers are a broad subject, the report is necessarily limited in scope.
First, the report considers a country’s business environment and infrastructure only as they affect international trade. Their effects on the domestic economy are outside the scope of the study.
Second, even though trade between countries includes goods, services and factors of production, this report focuses on goods. (Manufactured) goods make up the majority of global exports and are most relevant to international supply chains. The economic modelling in this report includes all non-fuel trade.
Third, governments propose many arguments in favour of tariffs, quotas and non-tariff barriers, for example for goods that have strategic value. The report does not try to evaluate these arguments.
The report combines a quantitative study of the macro effects of barriers with a view of their effects on the ground. It aims to generate insights and recommendations that policy-makers, trade representatives and companies can use.
The report draws on the Forum’s network, Bain’s analytical capabilities and the World Bank’s expertise in trade and macroeconomics. The team also received input through a series of high-level Enabling Trade workshops around the world (including in Washington DC, Geneva, Puerto Vallarta, Tianjin, Hong Kong SAR, New Delhi and Dubai) which engaged senior government and international organization representatives, business leaders and academics.
The authors started with a review of the academic literature. There have been many reports on the macroeconomic impact of barriers. However, most do not lend themselves to action. While these reports identify various impacts, they lack insight into how companies actually think about their supply chains and how they make decisions.
So the authors of this report decided to approach the subject from two sides. First, they assessed the macroeconomic effects, working with Michael Ferrantino and his team.1 Team members drew on the gravity model developed at the World Economic Forum, along with a survey conducted specifically for this report. They based their assessment on the Enabling Trade Index (ETI) as published in the Forum’s Global Enabling Trade Report (GETR).
Next, the authors looked at the effect of barriers on companies. They reached out to nearly 90 companies,2 and received input in varying degrees from 35 companies. Twenty-one participated in building 18 case studies representative of major industries, barriers and supply chain steps. The companies are all multinationals, each has operations in over ten countries and all geographies are covered. Their combined revenue exceeds US$ 800 billion. As many were worried about confidentiality and political repercussions, most are not named.
A comprehensive bottom-up study of all supply chain barriers to trade is obviously unachievable. The report’s authors needed to work with companies that were willing to cooperate and provide data within a limited timeframe. This skews the company sample in a few ways:
- Western companies are proportionally overrepresented because they were easier to approach, and as a group they were more willing to participate
- Most of the case examples describe the experience of large multinationals; these companies have usually invested heavily in their supply chains, so they don’t necessarily face the highest barriers
- Smaller companies are underrepresented, an issue addressed later in the report.
For the case studies, companies were asked about the biggest supply chain barriers they face and which regions and products are most problematic. Each case study was then framed based on company responses wherever possible. The authors tried to understand the implications of these barriers and what an ideal scenario would be. They also tried to understand how the companies dealt with the barriers. Cases typically involved several interviews, data provided by the company, and external research. Sometimes, the companies came with their own analysis. Other times, a model a company had already built was adjusted.
Because the report is based on case studies of specific companies and products, the examples are detailed and colourful. Though all companies agreed to the publication of their case, the case studies are only as valid as the information provided.
Finally, based on the case examples collected and the interviews and discussions with the task force, the report lays out the main insights. Based on consideration of these insights, the World Bank offers recommendations for policy-makers and trade negotiations.