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Global Demand Needs Global Supply

Making the case for freer trade.

David Abney | UPS

Six years ago, Lara and Joe Francisco achieved what amounted to a medical breakthrough for the men and women who work in healthcare: the California couple developed a line of hospital scrubs and lab coats that not only resist bodily fluids and stop bacteria from reproducing – but also are far more stylish than traditional medical wear.

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The co-founders of Medelita LLC found a ready market in the U.S. but struggled overseas. The reason: customs red tape and hidden duties and fees that, when added to the shipments, prompted some customers to refuse delivery when their orders arrived.

Medelita persevered and, with the help of UPS, developed a system that enables customers in the 23 countries it serves to calculate duties and fees accurately before placing uniform orders.

The new approach is working: today, Medelita’s international revenues are up 46 percent.

But for every company like Medelita that learns how to export, I worry that too many others decide it isn’t worth the effort.

That’s regrettable, because a world where goods and services trade freely is a more fascinating – and prosperous – place to live. Exporting is also good business: according to the U.S. Small Business Administration, companies that export are 20 percent more productive and create 20 percent more jobs than those that don’t.

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The day will come where anyone can order anything from anywhere and have it delivered where, when, and how they want.

By 2030, the number of people considered middle class is projected to triple. And more of these consumers – and the businesses they own and manage – are shopping online, giving them access to goods and services from every corner of the globe.

By 2020, the number of Internet users worldwide is expected to double to 5 billion – and per-capita spending is expected to do the same.

Making Progress

The day will come where anyone can order anything from anywhere and have it delivered where, when, and how they want.

But current trade laws still deter too many businesses. While import tariffs have dropped by about a third over the last decade, the other fees charged at customs more than negate those savings.

Add in the cumbersome paperwork and the process becomes even more daunting.

Fortunately, the world’s policymakers now have an opportunity to reduce these unnecessary impediments – and pave the way for a renaissance in global trade. Two of the agreements being negotiated by the U.S. – the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP) – would promote greater trade with, respectively, the European Union and with 11 countries in Asia.

Together, these agreements could significantly reduce trade barriers among countries that comprise more than 60% of global GDP. While some of the negotiations could stretch into 2015, the time for businesses to begin planning for the opportunities these agreements will create is now.

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These agreements could significantly reduce trade barriers among countries that comprise more than 60% of global GDP

To understand the benefits of these trade agreements, let’s examine the Trans-Pacific Partnership. The U.S. exported more than $620 billion of manufactured goods to the 11 other TPP countries in 2013.

With the elimination of tariffs on manufactured goods – which includes everything from industrial machinery to plastics – U.S. companies will be more competitive in TPP countries.

Consider that some of the U.S. firms exporting auto parts to Vietnam face a tariff of 27 percent, while companies in China, Thailand and Indonesia ship duty-free. Eliminating these tariffs would make U.S. manufacturers more competitive in Vietnam.

Eliminating tariffs is just the start. The agreements will simplify customs procedures, strengthen intellectual property rights, and harmonize the customs laws among participating countries.

The agreements also include provisions to regularly review the impact on smaller exporters.

The consideration that negotiators have given to the needs of small and mid-sized businesses lead me to believe that we could be on the cusp of a new era of global commerce. As a consumer, the world will become your store. And as exporters like Medelita have discovered, the world will become your customer. goldbrown2

This article originally appeared as an advertorial in the World in 2015 edition of the Economist. Click here to download the PDF version.

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Visit David Abney's Linkedin profile page. David Abney is Chief Executive Officer of UPS.

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Reprinted with permission of Longitudes, the UPS blog devoted to the trends shaping the global economy.

3 Comments

  1. Janak Desai

    Adverse impact from foreign exchange movements can do a wipe out as some CEO have found out .The need of Global Free movement of people must go hand in hand with the World Trade .

  2. David Staggs

    Is this difficult? What countries refused? No information can lead to impossible solutions. Congo, Sytria, Iran, do you really think the problem is tariffs? Money problems can easily be resolved, if you know how to do it. David Staggs Speculator

  3. Kristi

    This problem really hits home with me because I have family in Germany and can remember my grandmother there telling us not to send her large Christmas packages because she is often charged high amounts in hidden duties. Being able to calculate duties and fees beforehand should be required, and no customers receiving delivery should have to worry about hidden fees. We lose out on economic opportunity when we avoid exporting goods solely because of the unknowns attached to it and the increased complexity. From a procurement standpoint of a company, one of the tasks is to balance price with the complexity of procuring items, and an issue such as this could easily be a deal breaker for deciding which source to use. Outsourcing is becoming increasingly popular, and in a growing world where other nations are beginning to catch up and demand our products, we need to recognize the value of world trade and continue to create systems like Medelita and UPS have created to improve the exporting process and decrease the unknowns.

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