Undeniably, the majority of international trade and investment takes place within Global Value Chains (GVCs). One-third of world production is done by multinational enterprises and they account for half of world trade (1). The COVID-19 pandemic has further proven the vulnerability of the world economy and global trade due to their dependence on GVCs. Disruptions in GVCs not only have short-term negative economic impact, but also inflict severe long-term damage to the societies. As the pandemic continues, trade disputes and magnifying protectionism will only continue to impede the free flow of people, capital, goods and services.
To address these issues, the B20 Saudi Arabia and its Network Partner, Business at OECD, today launched a joint conceptual policy proposal that focuses on reducing barriers that firms encounter in their quest to participate in GVCs. The policy paper, titled “GVC Passport on financial compliance, a pragmatic concept to strengthen inclusive and sustainable growth”, calls on G20 to work towards a system envisioning a significant reduction in bureaucracy, while increasing transparency and traceability, as well as facilitate firms’ access to wider markets.
The paper stresses the need for policies and regulations that support investments towards sustainable growth. The “GVC Passport” allows firms incorporated in one participating country as a business entity to operate legitimately in other participating countries. It would provide an authenticated, authoritative, verifiable financial fingerprint of a given entity, enabling it to operate within GVCs without the need to reproduce the same documentation on multiple occasions.
The “GVC Passport” has the potential to benefit the entire global business community. By using technologies such as blockchain and artificial intelligence, the “GVC Passport” offers firms the ability to operate seamlessly across borders. It can increase access to service and goods, improve transparency, reduce tax evasion, expand data gathering and enable faster adoption of digital tools and technology.
While the vision outlined in this paper is aimed at all firms, it can highly support small and mid-size enterprises (SMEs). SMEs represent 90 percent of businesses and 50 percent of employment worldwide (2), and have been hugely impacted by the events of the past nine months. The pandemic has put an extra burden on these companies that already face a proportionately higher cumulative regulatory and administrative burden relative to their resources. This policy initiative will help SMEs reduce operational costs and improve transparency and access to wider markets.
B20 Saudi Arabia recognizes there is still a great deal of work to be done to implement this concept. However, the first step is to improve cross-border policy coordination which the G20 can play a role in. The B20 and Business at OECD encourage the G20 to consider the merit of the “GVC Passport” and assess its implementation. Support of this proposal would allow firms of all sizes to participate in and take full advantage of GVCs, unleashing their economic potential and ability to withstand future crises and disruptions.