Is this world full of obstacles

Risk factor trade restrictions

The German export industry sees its international business being hampered by increasingly higher trade barriers. In a current survey by the German Chamber of Commerce and Industry (DIHK) among 2,000 companies, one in three complains that they have to meet additional requirements every year.

The weights in the world economy are shifting. The development is currently characterized by low oil and raw material prices. According to the authors of the DIHK study, countries that buy raw materials, especially in Europe, are getting tailwind from relieved budgets. In contrast, resource-producing countries with formerly strong growth are under pressure. In addition, the draft horses of the past few years have been paralyzed - such as the Chinese economy.

Based on the study, the balance of "better" and "worse" expectations for international business is plus two points. In the previous survey, the value was still six points. According to the results of the study, companies involved in foreign trade are even more cautious about global economic developments than they did last year. After all, the euro zone and the USA are proving to be stable sales markets.

The uncertainty felt in companies' assessments is due not only to raw material prices but also to the external economic environment, which continues to be marked by political instability - such as the crisis in Syria, terrorist threats, the conflict between Russia and Ukraine or the economic and political setback in Brazil.

The study results also show: This uncertainty is also reflected in the global propensity to invest. In the world's major markets, at least consumption is stabilizing economic activity. The low raw material prices relieve the budget of consumers, low interest rates encourage consumer and real estate loans in some places. However, this is an upswing that is not fully appreciated by the investment-heavy German export industry. This has repeatedly benefited from global investment cycles and has shown its strengths there, especially in mechanical engineering. The competition in consumer goods, on the other hand, is even more intense - also with competitors from Italy or France.

A world full of trade barriers

The study shows a clear trend: the internationally active German companies are facing more and more barriers to trade in their cross-border business every year.

35 percent of the companies observed an increase in trade barriers again - this is only slightly less than in the previous year (36 percent). In the opinion of the study authors, this development is worrying in view of a rather weak global economy and strongly curbed world trade. Because right now it would be necessary to facilitate international business.

The authors come to the following conclusion: "The establishment of trade barriers in the form of higher tariffs or import taxes fortunately seems to be out of fashion. However, a number of countries are resorting to alternative methods to help their own economies against foreign competitors." Foreign competitors and thus also German companies are slowed down in many regions of the world by security requirements or local certifications. In addition, quotas, restrictions on tenders or targeted subsidies on the domestic market are instruments that are used as barriers. Opportunities for entering the market are thus contained, margins are depressed by high bureaucratic costs - the domestic industry is thus protected.

Overall, with 52 percent each, the companies see themselves as most affected by higher security and local certification requirements. In addition to the existing international certifications, tests must be carried out according to local standards - which are also often introduced at short notice. Compared to previous years, the barriers caused by local certification requirements have dropped by five percentage points (previous survey: 57 percent). Nevertheless, this element remains a major barrier to trade, the authors conclude.

There is also no all-clear when it comes to security requirements. More companies than before are reporting such measures in partner countries - 52 percent (previous survey: 50 percent). In view of the unstable security situation in many regions of the world, this development appears to be logical - but it nevertheless puts considerable strain on the exchange of goods. For example, additional registrations or comments on the origin of the product or the freight flow are required. On the other hand, based on the study results, the importance of higher tariffs as a trade barrier is decreasing. Only 16 percent are more affected by trade barriers of this type than in the previous year (previous survey: 20 percent). The compulsion to produce on foreign markets is still relevant for 18 percent.

There are hardly any limits to creativity when it comes to trade barriers

The number of other trade barriers is remarkable. In the "Other" category (32 percent), embargoes, in particular the sanctions against Russia, as well as the increase in regulations, for example for the dispatch of goods by air freight and the associated administrative costs, are cited.

However, the study also shows that trade barriers are not only raised abroad. With the confirmation of arrival, German companies in the European internal market must prove to the German tax authorities that the goods have reached another country.

This guarantees the VAT-free shipping of the goods. Practice shows time and again that this document is unknown abroad. Forms only in German, English and French are not sufficient for business relationships with countries with other official languages. The required signature of the recipient is difficult to obtain, especially for night deliveries. For German companies, this means time and a burden on business traffic, the authors continue.

Companies encounter barriers in many markets around the world. The type and frequency of trade barriers vary depending on the region. The extent to which the obstacles affect the individual regions becomes apparent when the companies that are also active in the respective countries are considered. The situation is currently particularly difficult in Eastern and Southeastern Europe, Russia and Turkey. Almost 75 percent of the companies that are active in this region see themselves as being affected by new trade barriers. The mutual sanctions between Russia and the EU through to import bans for European companies are associated with high administrative hurdles for companies. In addition to the additional hurdles, the companies also suffer from the loss of business due to the sanctions, according to the result of the DIHK study.

In second place are the regions of Africa and the Near and Middle East - 44 percent of the companies active in these regions encounter trade barriers. In addition to the political instability in some states in these regions, other hurdles are hindering trade with German companies. The authors continue: "For example, the Egyptian Ministry of Trade and Industry has created a further obstacle to the import of foreign goods by introducing a registration requirement for foreign manufacturers of selected imported goods." In doing business in China, 44 percent of companies also face hurdles. In addition, 35 percent of companies operating in Central and South America feel that their business is restricted by trade barriers. Companies that do business in Asia (30 percent), North America (29 percent) and the euro zone (20 percent) and with other EU countries (16 percent) report fewer trade barriers.

After all, good news too

In addition to a worldwide increase in trade barriers, there are also isolated trade restrictions. The agreement on the expansion of the "Information Technology Agreement" (ITA), the largest global free trade agreement for IT products to date, is to be seen as positive news, according to the results of the study. After years of negotiations, 54 countries, including all EU members, the USA, China and Japan, decided at the WTO conference in Nairobi at the end of 2015 to abolish tariffs on over 200 IT products. The agreement is scheduled to enter into force on July 1, 2016. Then the gradual dismantling of the tariffs takes place - 65 percent of the customs lines are immediately duty-free, the other tariffs are dropped in defined stages. In the opinion of the study participants, the agreement on the agreement is seen as a positive impetus for the German economy and is particularly important for the advancement of Industry 4.0 in Germany.

[Source: Own text based on: Deutscher Industrie und Handelskammertag e. V .: Going International, experiences and perspectives of the German economy in international business, results of the IHK company survey 2016]

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