Free-trade agreements have significant implications for supply chains

China’s accession to the World Trade Organisation (WTO) in 2001 is perceived to have had a transformational effect on world trade. If this is so, then the next stage in the development of free-trade systems ought to have enormous consequences for the logistics sector.

Certainly, Frank Appel, CEO of Deutsche Post-DHL speaking at a prize-giving ceremony in New York, commented that he thought that an Atlantic free-trade agreement offered  “at the very least one additional percent of growth in both regions respectively and generates innovative momentum in many industries and sectors.”

Being negotiated at present, the Trans-Atlantic Trade and Investment Partnership (TTIP) and the not dissimilar Trans-Pacific Partnership (TPP) are different animals to the WTO agreements of the 1990s and early 2000s. Whereas the latter agreements were focused on opening-up trade in comparatively simple manufactures such as clothing or consumer durables, the TTIP and – to a lesser extent – TPP are concerned with more sophisticated production operations as well as services and areas, such as government procurement.

Consequently, the affects are likely to be quite different. Rather than giving the freedom to import into new markets, it may offer the opportunity to restructure existing markets. As Frank Appel commented, “Such an agreement should not just address all types of trade barriers and promote the standardisation of rules in important business areas. It should also eliminate existing barriers to investment and market entry.”  One example may be airlines which, at present, have limitations on ownership in the US and many European markets.

However, a secondary purpose of these suggested agreements is to control the influence of ‘state-capitalism’ in economies such as China. Indeed, the Pacific partnership appears to be defined by an ‘anybody but China’ principle. In the face of a Chinese economy with increasing costs, this could tip the balance either towards re-shoring, as it is perhaps clumsily known, or rather make lower cost areas within the ‘Trans-Atlantic Trade and Investment Partnership’ and Trans-Pacific Partnership more attractive. In doing so, it will amplify the existing trend towards greater complexity in trade and supply chain patterns.