SMEs are key to inclusive trade, say global experts

Textiles account for 80% of Bangladeshi exports but working conditions in the trade are poor. [Asif Islam/Shutterstock]

Trade has become a scapegoat for complex challenges and many countries, such as the US and the UK, have withdrawn into protectionism. Experts say SMEs should be the starting point for more inclusive global trade and more responsible supply chains.

“Open trade, rooted in multilateral institutions like the WTO, remains the best way forward. But market opening alone is not enough,” said Arancha Gonzáles, executive director at the International Trade Centre, in Brussels on Thursday (15 June).

“Protectionism is an intellectually lazy answer to the challenges posed by globalisation,” she added, pushing for new ideas to mainstream sustainability across the global supply chain.

Gonzáles’ remarks came as the UK heads toward negotiations to exit the European Union and Donald Trump withdrew the United States from the Paris climate agreement.

Meanwhile, the EU has issued its own mea culpa and begun pushing for the benefits of globalisation to be shared more equally. In a reflection paper on harnessing globalisation published in May, the European Commission noted that the free flow of goods and capital is no longer an absolute source of prosperity: it is a wild reality to be harnessed in order to control its intrinsically dark nature.

EU facing up to deficits of globalisation

After almost two decades of neglecting the flaws of free trade, the European Commission admitted yesterday (10 May) that it is high time to share the benefits of globalisation.

According to free trade advocates, protectionism would reduce purchasing power and weaken productivity growth by decreasing specialisation, competition, and scale.

“It might save a factory here and there, but at the cost of making entire societies poorer than they otherwise would have been,” Gonzáles said.

It is then crucial to make trade more inclusive so that everybody benefits from globalisation, starting with the participation in the global marketplace of the businesses that employ the vast majority of the workforce.

Davos warns ‘squeezed’ middle class needs attention

Threatened by unemployment and stagnant wages, the middle class is increasingly feeling the pinch and falling prey to populism, as shown in recent elections and the Brexit vote, international and business leaders in Davos warned.

Here, Germany’s Mittelstand stands as the iconic symbol of how a globally connected SME sector is closely tied into bigger companies’ value chains.

Cutting fixed costs

“SMEs can increase economic dynamism while fostering a more equitable distribution of the fruits of growth,” said the ITC executive director.

To make that happen experts value policies that reduce fixed costs related to trade, like complex border procedures and the need to meet various product standards.

Christian Ewert, the Foreign Trade Association director general, notes that there needs to be an alignment of standards across different global trade regions, including China.

Businesses and governments should not be afraid of China participating in setting standards, rather the contrary, he said. Pushing China to come up with their own standards is counterproductive and it is better to start an inclusive process to which they can contribute, Ewert insisted.

The complex variety of sustainability standards is a no way street and a real handicap for SMEs, agreed Gonzáles. “Inclusive trade means setting norms that are not unnecessarily complicated,” she said.

Standard-setting is basically no longer the remit of government agencies alone. In many market segments, private standards count far more than public ones.

“Setters of voluntary sustainability standards should strive to avoid needless duplication, and work to support compliance by smaller companies,” said the trade expert.

A standard is only responsible if it provides for incremental SME compliance. For example, the ITC’s Trade for Sustainable Development principles set out some guidelines for ensuring that sustainability initiatives live up to their name.

“Responsible trade has to be environmentally sustainable and socially inclusive, rooted in cooperation based on shared rules. Governments and businesses have the tools to make it happen,” she said.

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