Reducing Trade Barriers Allows GDP Growth: Report

Lowering impediments to global commerce would help lower costs to companies, and ultimately lower consumer prices, said a new study by the World Economic Forum.

DAVOS, SWITZERLAND — Reducing supply chain barriers to trade, such as border administration and transportation and communications infrastructure, could sharply boost global production and trade, a report by the World Economic Forum said.

Lowering such impediments to global commerce would also help lower costs to companies, including in the textiles and apparel sector, and ultimately lower consumer prices, said the study, released here Wednesday at the WEF annual summit.

The report, “Enabling Trade: Valuing Growth Opportunities,” compiled in collaboration with Bain & Co. and the World Bank, estimates that reducing supply barriers even 50 percent to the world’s best practices could increase world gross domestic product 4.7 percent, or $2.6 trillion, and exports 14.5 percent, or $1.6 trillion.

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It also highlights, through 18 case studies, that removing barriers that companies face can enhance competitiveness.

“Eliminating supply chain barriers eliminates waste for companies,” said Mark Gottfredson, a partner at Bain & Co.

Gottfredson said red tape is one barrier that can be tackled at a low cost, and noted when shipping low value goods such as apparel, supply chain barriers can be expensive.

In Madagascar, the report shows, barriers can account for up to 4 percent of total revenues of an apparel producer through higher freight costs and increased inventories, “eroding the benefits of duty-free access to export markets,” and its competitive status due to lower labor costs — the country’s minimum wage is $35 a month, compared to $53 in India and $155 in China.

“Madagascar’s border administration procedures present operational problems that result in significant delays,” the report notes.

Such supply barriers, it adds, limit Madagascar’s apparel companies’ access to some of the apparel industry’s most lucrative markets, such as the fast-fashion segment, which has an annual growth rate of 14 percent and now accounts for almost 20 percent of the apparel market.

“With inventory turns every two to eight weeks, fast fashion companies like Zara and H&M depend critically on reliable deliveries,” it said.