EP11 Navigating customs and international trade regulations

(upbeat music) About 10 years ago, the whole trade structure was designed around being as optimized as possible. Today, the world has moved on and we are looking at trying to get trade to be fair, to be inclusive, to be socially responsible and to align with environmental concerns. This is "Beyond the Box" integrated logistics from the inside out. In this episode, we're embarking on a journey through the labyrinth of customs and their place in global trades. In today's world, every item and every component of an item coming from abroad has to clear customs before it reaches its final destination. If you're in business, you'll be all too aware of this and of the complexity of the system. As you'll hear in today's panel, there are now over 3,000 trade regulations which are constantly being updated and added to. How did we get here? Where are we going next? And how do you best make your way through this jungle? Stay tuned to find out with your host, Samantha Almona-Delawai. - And we're here with Dr. Ralph Ulster, Chief Economist and Director of the Economic Research and Statistics Division at the World Trade Organization and Philippa Isler, Director of the Global Alliance for Trade Facilitation and Argy Lars. Hello, Lars. - Hello, Sam. - Lars Carlson, Global Head of Trade and Customs Consulting at MERSC. Thank you all for joining us. - Well, thank you for having us. - So, Dr. Ulster, we just mentioned at the start that there are over 3,000 trade regulations. Can you tell how did we come to get to this situation? - Well, first of all, let me say that's the count of the IMF and I think it's a little bit alarmist. So it's true that there's trade restricting measures that are being put in place, but there's also trade facilitating measures being put in place. And in fact, this is exactly what we're working on. We have a trade facilitation agreement. We have a plurilateral agreement now on services, domestic regulation. So I think it's important also to see things in perspective. But having said this, I'm also concerned about the situation and the way I think about it is almost like a cascade consisting of three steps. And at the top of the cascade is really the change in the narrative. You know, it used to be, we used to all agree that economic interdependence is a good thing, particularly among geopolitically unaligned countries, think about European integration. That was the guiding principle of the post-war international economic order. That has really changed fundamentally. We're now more and more governments around the world are looking for economic independence or at least interdependence with geopolitical allies. And we're beginning to see, I'm getting to the second step. This manifests in increasing trade tensions. Of course, the tariffs between China and the United States are an increase in industrial policy activity and many other measures that you can see. And the third step then on the cascade, we see that this is starting to manifest in trade fragmentation. So we are not seeing de-globalization. I want to be very clear, but we're seeing a fragmentation of trade flows along geopolitical lines. - So Lars, I assume you'll be keeping a close eye on developments in your role as the global head of trade and customs consultancy at MERSC. But can you tell us what is driving these regulations? - No, Sam, there's a lot of different drivers for them, as Ralph said before as well. But the important thing here is that, what we are seeing right now is that there are also new drivers for this, like ESG, environment, social protection and governance rules that is bringing forward where governments are trying to solve bigger issues around how you can do this. And the important thing here is that we need to get prepared to actually work in trade, together with governments and international institutions to make this work. - Thank you. Philip, in your role as executive director for the Global Alliance for Trade Facilitation, can you tell us what the current landscape means for businesses and trade? - Well, I think you have to look at all of this in its context. About 10 years ago, the whole trade structure was designed around being as optimized as possible. Today, the world has moved on and we are looking at trying to get trade to be fair, to be inclusive, to be socially responsible and to align with environmental concerns. And this is a tall order, of course. And so this is probably one of the reasons why we are getting so many regulations enacted. It's for the good of the planet, but to your question, it can feel pretty daunting if you are a private sector company trying to trade around the world. And I think what is important here is to try and break this down into manageable parts and try and design solutions which is going to address some of these concerns. And very importantly, you need to get governments and private sector to talk to each other and design the new trade system on the basis of a co-creation process. - What are the repercussions then for businesses if they don't comply with these trade regulations? - I think we've got to be careful not to be too alarmist. It's not as if these regulations are coming and immediately you're going to be sanctioned with huge penalties. I think governments are clear enough that this is all going to take time and that the private sector needs some time to adapt. Having said that, the screw is being turned and pressure is mounting. And at some point you are going to get into a situation where potentially penalties will be applied. But I think we've all got to develop this as a community and try and find solutions which are manageable rather than focusing on what could be the repercussions if things are not going as governments want. - Absolutely, and it's talking about a community. Lars, I'd like to sort of bring you up 'cause you're having these discussions with our customers. So what is the most significant challenges that businesses are sort of having to navigate through when it comes to these regulations but also talk about challenges? Are there any opportunities? - Yes, of course there are and of course the real problem is the complexity of trade already where we know trade is good, trade is driving growth, it's erasing poverty and doing a lot of good things. At the same time as my colleagues have said here as well, we have a lot of other counterbalances and regulations coming in place. So this is very difficult for a small and medium-sized company or even for a multinational to navigate through. On the good side, I think that there's also a dialogue around this and as Philip was saying before, private sector government working together is absolutely necessary. Neither part can actually solve this on their own. We need to do it together. We need to make sure we are not replacing red tape with green tape. We actually want to do this in a smarter way. We have data today, we have digitalization. So again, those who actually adopt to this because it's good for their business will also be the winners. So of course there's opportunities also in these changes coming along because I think many of our companies have these type of green transformation policies. It's high on the agenda as is the forced labor legislation type of things and so forth. And while we are doing this also for trade, this of course creates a possibility for those who are early adopters who actually use digitalization and data and know their partners and work with people who actually also have the same views. By doing that, you can actually be the winner. You can be the next generation of companies that are doing trade even better in a globalized world. - Dr. Osso, could you tell us what will happen next? What can we expect when it comes to the trade regulations front? - Well, I wish I had a crystal ball and could tell you. - Don't you rough? (laughing) - But certainly looking at the trade policy or at the policy landscape I think is important if we want to get a sense of what's happening with international trade because we have some significant challenges ahead of us as a world and I see mainly four. First, we need to achieve a sustainable economy. Second, we need to maintain peace and security. Third, we need to reduce poverty and inequality. And fourth, we need to manage the digital revolution and they all are going to require some policy response. And at least from the perspective of the WTO, it's not our place to tell governments what to do. But what we do strongly believe in is that trade is an important part of the solution to all of these challenges. So what we want to focus on is making sure that international trade in general and the rules-based trading system in particular don't become the collateral damage of these policy efforts. And I think that's exactly where these discussions here, these interactions are so important because sometimes policies pursue great objectives and are implemented with good intentions but then it's also the implementation that I think is really important. Now, this is particularly, I think, where the dialogue also with the private sector can be really important. Well, like for Ralph, I don't have a crystal ball. But what I would like to emphasize here and Lars mentioned it, is the importance of trade when it comes to economic growth. There's been much debate about trade, even whether trade is necessary. The reality is that if you look at the demographics in some parts of the world, you will realize that economic growth is not a nice-to-have, it's absolutely essential to be able to provide jobs and opportunity for all. And in that sense, you have to think of trade as a tool to generate economic growth. And if you have too many regulations being enacted, it is gonna have a negative impact on that. And so it is really essential that we are able to work as private sector with government upstream so that these regulations make sense but importantly are implementable from an operation perspective. Like the broadening of how we need to work together and much further upstream than sort of regulations being made separately from what's actually being felt on the ground with the private sector. - Now, Carl's here, could you tell us, and I'm sure many customers are wanting to know this, what should businesses be doing right now to prepare? - Yes, unlike my colleagues, I of course have a crystal ball too. (laughing) Being a customs guru, I can actually give exactly the three things our customers or any trader would have to do. One is bring awareness to your company about this going on. Because if you are the expert and you're seeing this coming and we can certainly verify that this is coming, then you need to make sure your company is aware of this and starting to plan for it. Secondly, you need a strategic customs plan. You need to look at this from end to end, not as separate things happen border by border or country by country or nation by nation. If you have international business, you need to have a strategic customs plan to actually make this work together with your supply chain and get supply chain visibility. Number three, you need also to look at solutions. What will be my solution as a company? And what are my partners? What are my stakeholders in the supply chain that I can work with to make this happen? So I think that these are the three practical things people can start doing today to be prepared. And by that, again, I also like the idea of not seeing this as a big problem or big challenge or only something that will cost them. This is actually a real opportunity to be ahead of time and going forward in a way where you actually can make money, save money, make sure you have control over your trade compliance, have control over the various things that we talk about. So it doesn't become a risk. It actually becomes an opportunity. - Oh, just to pick up on that, because we know that in the customs world, it's a bit of a dirty word when it comes to, you know, how fast things are moving. Could you just give us some insights into what's happening on the digital side and how that can actually accelerate some of this change? - Now, the interesting thing is that, of course, the good news, the bad news is it's going too slow. The good news is it's actually accelerating right now. And we've seen the digitalization of trade going from telephaxing papers around to actually have a digital full flow of goods and full flow of data and digitalization and documents around the supply chain today. And this is going much faster than we saw a couple of years ago. And of course, it's up to us now to find the solution how we use and reuse data in a safe and secure way. I think sometimes also when we have these discussions, our customers and in relation to governments also say, well, private sector, they don't want to share more data. This is not our experience. We actually do want to share data we have. We want to exchange it more, of course, in safe and secure ways for the right reasons. But if it's improving the process of making trade more facilitated, be it here, specifically predictability and resilience is better, then we will be available and we will be there to actually work with anybody and any stakeholder to exchange data more in a more efficient way. It's really clear, we're very optimistic about what the next steps will be. But again, we'll have to do together. There's no other way to do that. - Well, thank you gentlemen. Before we wrap up, I'd like you each to share one thing that people should take away from this discussion on customs and trade regulations. Dr. Ulster, could you start? - Well, I'm not sure it's a takeaway, but if you give me the opportunity, I'm going to say something important for me to get out, which is that the WTO, for all the attention it gets in the media sometimes, is still the cornerstone of the international trading system. My favorite number that I need to share is that more than 75% of all trade is still conducted under MFN terms and the remaining 25% is largely conducted under preferential trade agreements, free trade agreements that are again, subject to WTO disciplines in particular that substantially all trade needs to be free. And what this means is that despite the fact that perhaps on the negotiations, we are not moving as fast as we should, despite the fact that perhaps in dispute settlement, not everything is the way as it should be, what we have is still extremely precious and is a historic achievement of the international community, which is very, very worthwhile protecting. And I would just encourage also this community to work on this, because if we want to tackle these challenges that we are talking about, we will need some coordination, we will need some cooperation. We don't want a mess of policy responses. And I mean, yes, multilateralism is difficult, but I think we need it now more than ever. - Philip, what would you like to add on to that? - Well, I think, you know, we mustn't forget the fact that there's probably in the world nothing more global than international trade. And we all have the same interests, and it's absolutely essential that we can get private sector, government, and international institutions to one way or another work together. And I joined the discussion about multilateralism, but even further, right? It can't just be governments and private sector working separately. They somehow have to work together, even though our experience at the Alliance is that these two groups very often work in completely different worlds, and they have to get to understand each other and have to find ways to collaborate. Maybe just one other point that I would like to make is that of customs, in the sense that we have to be cautious that we don't put all the blame on customs. We're not just talking about customs, we are talking about government regulations that sometimes come from non-customs regulatory agencies. And I think there is some time to tendency to make customs the bad boy in the ecosystem. And so customs is, one of the customs mandate is also to facilitate trade, and I think they recognize that and they want to work in that way. And so let's have a look at this as a whole and try and all be successful together. - That's a really crucial point that you've made there because of course a lot of these sort of regulations and the ways that our businesses have to operate is not solely at the foot of the customs area. Lars? - Yeah, absolutely. Customs are never going to be more important than now, but it will be more important tomorrow. - Wow, that was short and sweet. Well, I would like to thank you gentlemen. Thank you so much for spending some time with us today. To talk on "Beyond the Box", you've been fantastic guests. Thank you very much. - Thank you, Sam. - Thank you very much. - That's it for this episode of "Beyond the Box". A big thank you to this episode's producers, Cecilia Larsen and Kairi Kuik, to our social media manager, Domino Koepenschrapp and our editor, Dana Schekar A. To make sure you don't miss out on future episodes, subscribe to "Beyond the Box" on Spotify, Apple Podcasts or wherever you listen. Until next time. (gentle music)