NZIER study for TradeWindow
MEDIA RELEASE
NZIER study for TradeWindow finds digital trade will drive fundamental changes
in trade and unlock major economic gains to be shared across the supply chain
13 December 2021
Auckland, NZ. A new report from the New Zealand Institute of Economic Research
(NZIER) finds that digital trade solutions have the potential to drive fundamental
changes in the supply chain and unlock economic benefits equivalent to a major
trade agreement for every country pairing that adopts digital trade.
The report titled “Digital Trade is the way forward for New Zealand”, was
commissioned by TradeWindow to quantify the possible economic benefits from
increased adoption of digital trade. The study found that a further NZ$9-18 billion of
value could be unlocked over 10 years by trade between New Zealand and its
APEC trading partners if digital trade is more fully adopted.
NZIER’s Chris Nixon said the New Zealand Government is making positive strides
towards operationalising digital trade initiatives.
“Our report highlights there is a long way to go to realise the full benefits of digital
trade globally, however more trade agreements are starting to take account of
international digital transactions, with a number including binding commitments on
data flows. Emerging international agreements, such as the Digital Economic
Partnership Agreement - DEPA - which includes NZ, Chile, Singapore and hopefully
soon South Korea and Canada are among the pace-setters on this,” he says.
The report notes that China has recently formally requested to join the other
members and applicants of DEPA, and that the economic case is strong for it to do
so. NZIER quantifies possible economic gains of NZ$405 million - $1,584 million per
year in the New Zealand-China trade lane alone through the adoption of digital
trade.
The 35-page report identifies an array of gains from the increased adoption of digital
trade. These include:
• productivity gains from moving away from paper-based systems
• connectivity gains as digital systems for building trust break down long
standing cultural and regulatory barriers
• predictive gains from being able to ‘foresee’ supply and demand with
greater accuracy and plan accordingly
• visibility gains – enhancing security and certainty of provenance; and
• inclusiveness gains – enabling smaller and less sophisticated exporters and
importers to get started sooner, easier and more safely in global trade.
“It comes as no surprise to those working in the supply chain that the cost reductions
are significant. Recent examples showed that a single shipment could pass through
30 different organisations, with up to 200 communications about that shipment.
These communications are impeded if they use systems that do not talk to each
other, e.g. pieces of paper. If a form is missing or there is a problem with some
information, then delays are inevitable,” Mr Nixon said.
Mr Nixon says the benefits of digital trade have been particularly apparent during
the pandemic and this has increased the openness of exporters – large and small –
to adopt digital solutions for trade documentation.
“The benefits of digital trade solutions have been brought into stark contrast during
the pandemic when it has not been possible to deliver the right paper (with wet
signatures and stamps) to the right ports in the appropriate timeframe,” he says.
“If we can increase understanding through outreach programmes to MSMEs and
SMEs and demonstrate the value of digital trade, we will begin to realise that the
cost reductions are truly significant.”
The report was commissioned by TradeWindow, a trade-tech company helping
importers, exporters, freight forwarders, and customs brokers working on the frontline
of global trade. The company is an active champion for the increased adoption of
digital trade by particularly trade-dependent nations such as New Zealand, Australia
and across Asia and South America.
TradeWindow CEO AJ Smith welcomed the report.
“These positive findings come at a time when the New Zealand Government is
playing an active leadership role with the other APEC economies to encourage the
adoption of digital trade. It is helpful to see the economic benefits quantified and
also to appreciate that these benefits are shared across the supply chain with the
producer, transport companies, regulatory agencies and customer and consumer.
Everyone benefits when trade flows more efficiently, and trade begets more trade,”
Mr Smith says.
The full NZIER report is available at:
https://tradewindow.io/about-us/news-and-insights/blogs/
ENDS
About TradeWindow:
Founded in December 2018, TradeWindow is an early-stage software company that provides digital
solutions for exporters, importers, freight forwarders, and customs brokers to drive productivity, increase
connectivity, and enhance visibility. TradeWindow’s software solutions integrate to form a cohesive
digital trade platform that enables customers to more efficiently run their back-end operations, share
information and securely collaborate with a global supply chain made up of customers, ports,
terminals, shipping lines, banks, insurance companies, and government authorities.
www.tradewindow.io
Further information:
Piet de Jong, For TradeWindow communications
piet.dejong@baldwinboyle.com, +64 21 812 766
---
Digital trade is the way forward for
New Zealand
A preliminary assessment of the costs and benefits of
digital trade
December 2021
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negligence), equity or on any other basis) for any loss or damage sustained by any person relying on such work whatever the cause of
such loss or damage.
About NZIER
NZIER is a specialist consulting firm that uses applied economic research and analysis to
provide a wide range of strategic advice.
We undertake and make freely available economic research aimed at promoting a better
understanding of New Zealand’s important economic challenges.
Our long-established Quarterly Survey of Business Opinion and Quarterly Predictions are
available to members of NZIER.
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the right form and at the right time. We ensure quality through teamwork on individual
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NZIER was established in 1958.
Authorship
This paper was prepared at NZIER by Chris Nixon.
It was quality approved by Mike Hensen and John Yeabsley
The assistance of Sarah Spring is gratefully acknowledged.
How to cite this document:
NZIER. (2021). Digital trade is the way forward. A report for TradeWindow.
iv
Key points
This report provides a preliminary estimate of the costs and benefits of deploying digital
trade products and processes for New Zealand.
Digital trade encompasses the supply of cross-border goods and services enabled by
electronic data flows based on a myriad of interoperable platforms and applications.
TradeWindow is a provider of these products. While they and their direct customers will be
major beneficiaries of digital trade, the benefits will spill over to all participants in the
supply chain, including government, logistics companies, customers, banks, and other
supply chain participants.
Main findings
Digital trade products such as those provided by TradeWindow have the potential to
fundamentally change the supply chain for specific products by providing automated
services that make it much easier and faster to trade legitimate products. These automated
services offer multiple benefits:
• Productivity gains. These include ‘one off’ productivity gains from moving away from
paper-based systems, ongoing benefits as resources shift from skilled labour-intensive
paper systems to more productive activities, and improved ability to innovate.
• Connectivity gains. Increased ability to trade as barriers to trade are broken down
allowing more trade in old products in old markets, old products in new markets, and
new products in new markets.
• Predictive gains. Digital trade generates a large amount of new product-specific data
at low cost. This data can be used to predict product-specific demand and fluctuation
in demand, greatly increasing the ability of suppliers to anticipate demand.
• Visibility and transparency gains. All permissioned parties within the value chain can
access one set of documents (the source). This avoids confusion on what trade terms
parties agreed upon and clarifies the obligations of each of the parties.
• Inclusiveness gains. By making it easier to trade, trade barriers are reduced especially
for MSMEs (micro-, small and medium-sized enterprises) and SMEs (small and
medium-sized enterprises). This allows more SMEs and MSMEs to be involved in trade
and share in the potential benefits relative to trading exclusively on the domestic
market. It may also improve perceptions of trade more generally.
The analysis considers that the benefits will accrue over a number of years and that the
benefits will ‘ramp-up’ in later years as adoption of the system increases.
Costs cover implementation costs (hardware, software and training) and outreach to
MSMEs and SMEs to support their introduction into digital trade.
v
Table 1 summarises the estimated impacts of rolling out digital trade to selected countries
and regions. We have ‘picked on’ the countries/regions which we think will be most
receptive to digital electronic processes and practices, i.e.:
• Taiwan – a digital trade pilot took place last year using TradeWindow and TradeVan
platforms (TradeWindow and TradeVan are both members of the Consortium of 14
Trade and Customs Service Providers).
• Singapore – legislation has already been enacted to facilitate digital trade. This will
make the transition easier for New Zealand.
• Countries involved in or soon to be involved in the Digital Economy Partnership
Agreement (DEPA), which provides the international architecture for digital trade to
flourish. The DEPA consists of Singapore, New Zealand and Chile. The “+2” countries
are looking to join the DEPA (South Korea and Canada). Very recently, China has also
asked to join the DEPA (+1). If China is admitted, this will have a significant beneficial
impact and, importantly, encourage others to join the DEPA.
We have also set out the annual average impact on APEC if digital trade were to be
introduced over ten years and the present value of the benefits. Optimisation of the returns
from this innovation happens when our long term objective is to use digital trade in fast-
growing economies where our products are in demand. We have also illustrated the impact
of such trade with the United States, China, and the United Kingdom in Appendix B.
The potential benefits from digital trade for supply chain partners are very large. These
come from re-organisations of back offices, better utilisation of skilled staff, an increased
focus on innovation, and increased trade brought on by increased connectivity, to name a
few. We estimate that the benefits for all of APEC would be between $9 billion and $18
billion over ten years. To put this into context, New Zealand’s annual export trade is
approximately $61.5 billion.
Benefits of this size suggest that pursuing digital trading initiatives should be made a
priority. As an unambiguous reduction in transaction costs, they are akin to a tariff drop,
with the added benefit of speeding up the processes lying behind trade. They could be just
as significant as operationalising a major trade agreement.
vi
Table 1 Summary table of benefits
Millions of dollars, PV = 6%
Country/
region
Present value Average yearly gain Comment
Potential benefits
Low High Low High
Taiwan 248 497 30 62 Taiwan is ready to engage
Singapore 199 507 24 63
Singapore has already set
up the legal architecture
DEPA + 2 +1 3,996 8,029 490 1,004 The overarching
architecture gives digital
trade the green light.
China 3,302 12,032 405 1,584
How China approaches
digital trade is pivotal
USA 1,225 2,461 150 308 The US position in world
trade institutions means
that they also have a
pivotal role in the
development of digital
trade
ASEAN 1,229 2,469 151 309 Mixed approaches are
being adopted. Chinese
adoption of digital trade
will have a major positive
impact
CP TPP 3,579 7,192 439 899 Major players are moving
toward digital trade
UK 269 540 33 68
Stance unknown. Likely to
be very interested
Staggered benefits over 10 years: APEC
APEC 9,000 18,000 1,080 2,216 Per year from staged
increase in digital trade
Source: NZIER
Caveats
Most of the assumptions are derived from New Zealand and overseas studies. These are
characterised by major differences in definitions, measurement and evaluation
methodologies; the broad indications of the drivers and magnitude of benefits are still
relevant to New Zealand.
A key difficulty is establishing the ‘baseline’ or what would have happened in the absence
of the deployment of digital trade. Some companies, because of their size or customer
requirements, are well advanced down the digital trade track, and we assume that Fonterra
is part of that. We have assumed that over the next ten years, that 40% of the digital trade
gains will have already been achieved in the baseline. However, this may be an
overstatement.
vii
Contents
1 Digital trade’s time has come ........................................................................................................ 1
2 How did we get here? .................................................................................................................... 2
2.1 It is not should, but how we move to digital trade.............................................................. 2
2.2 The gradual growth of digital trade ..................................................................................... 2
2.3 Government to government processes increase complexity .............................................. 3
2.4 COVID-19 presented an opportunity for business and government ................................... 5
3 System design: trust is everything ................................................................................................. 6
3.1 A reduction in transaction costs .......................................................................................... 6
3.2 Trust reduces risks ............................................................................................................... 6
4 The opportunities – getting the best out of a COVID situation ..................................................... 7
4.1 The types of benefits that digital trade provides ................................................................ 7
5 TradeWindow products that support digital trade ......................................................................11
5.1 The design of TradeWindow’s offering is underpinned by trust .......................................11
5.2 Cube is the core of TradeWindow digital trade offering ...................................................12
5.3 Systems that work hand in hand with Cube ......................................................................12
5.4 Products that create further value ....................................................................................12
5.5 Supporting a single trade window .....................................................................................13
6 Digital vs paper trade ...................................................................................................................14
6.1 Introduction to the approach ............................................................................................14
6.2 The counterfactual .............................................................................................................15
6.3 The players involved ..........................................................................................................15
7 The benefits of digital trade .........................................................................................................17
7.1 Valuing the benefits ...........................................................................................................17
7.2 Productivity ........................................................................................................................17
7.3 Connectivity estimates ......................................................................................................18
7.4 Non quantified benefits .....................................................................................................19
7.5 The costs ............................................................................................................................19
7.6 Summary of costs and benefits .........................................................................................20
8 Implications ..................................................................................................................................23
9 References....................................................................................................................................24
Appendices
Appendix A Impact of digital trade........................................................................................................ 26
Appendix B Benefits of digital trade for selected countries.................................................................. 27
Figures
Figure 1 TradeWindow’s products .........................................................................................................26
Tables
Table 1 Summary table of benefits ......................................................................................................... vi
viii
Table 2 Assumptions that drive the analysis of benefits and costs .......................................................21
Table 3 Summary table of benefits ........................................................... Error! Bookmark not defined.
1
1 Digital trade’s time has come
TradeWindow is a developer of software solutions for entities working on the front line of
global trade. They aim to continuously develop solutions that integrate to form a cohesive
digital trade platform designed for exporters/importers, freight forwarders, customs
brokers and other stakeholders.
Digital trade products developed by TradeWindow allows entities to conduct business-
critical processes and securely participate in the global supply chain ecosystem. The supply
chain ecosystem consists of customers, ports, terminals, shipping lines, banks, insurance
and logistics companies, and government authorities.
Digital trade consists of digitally enabled or digitally ordered domestic or cross-border
transactions in goods and services which can be digitally or physically delivered (Lopex-
Gonzalez and Jouanjean 2017).
In the same way that long-run reductions in transport and coordination costs have
supported the fragmentation of production along global value chains (GVCs), declining
costs of sharing information are helping reduce barriers to digitising international trade
transactions.
There are several reasons why this is beneficial not just for TradeWindow but for all
participants in the supply chain. These include:
• Connectivity gains: increases the ease of making further connections as trade
increases and participation rates in trade increase.
• Productivity gains: digital trade fundamentally reorganises how businesses,
governments and other supply chain participants approach their trade.
• Visibility (transparency) gains: having one source of truth – the source documents –
cuts down the confusion and increases transparency for permissioned parties in the
supply chain.
• Predictability gains: digital trade generates more data at lower costs. This data can be
utilised to better predict demand for specific products.
• Inclusiveness gains: breaking down trading complexities will encourage more firms
into trading.
The purpose of this report is to provide an understanding of the potential contribution that
the TradeWindow services could make to facilitating international trade.
We have drawn on international and domestic studies in peer-reviewed journals, case
studies, information from TradeWindow and those using digital trading modules in New
Zealand, perceptions of digital trade within government, past assessments, and other
sources.
The analysis is intended to give policymakers and those in supply chains an indication of the
likely costs and benefits to assist in those contemplating the digital trade environment.
There remain a number of important uncertainties on the benefits, so we have taken a
conservative approach. As such, the depth of the cost-benefit analysis (CBA) reflects the
initial scoping nature of the assessment, in line with good policy practice.
2
2 How did we get here?
2.1 It is not should, but how we move to digital trade
There is not really a problem per se with paper documents that accompany trade
consignments. The point is that technology has developed better (lower cost, more reliable
and more accessible) ways of providing all manner of assurance information to
governments and supply chain partners associated with the movement of goods and
services that are more secure and quicker.
We are only at the beginning of the digital trading era, although as a trading nation New
Zealand is more open to and more advanced than other nations. It is quite clear that
through digital trade, businesses and the workers they employ will be able to reach millions
of new customers abroad more efficiently, more cheaply, and more rapidly than ever
before.
The real issue then is not should we move to a full-blown digital trade environment but
how we do so. There are likely to be different paths taken by different organisations. As a
first step, this paper illustrates the possible gains from digital trade.
2.2 The gradual growth of digital trade
There are a number of reasons for pursuing digital trade initiatives both from a business
and government perspective:
• The cost savings involved are significant. It has been estimated that in APEC
economies, the range of cost savings could be between 15% and 45% depending on
the current stage of digital trade initiatives in each country (United Nations 2014;
UNCTAD 2020; Duval 2017; WTO 2015).
• Reduced costs of trade will most likely increase trade, increasing profits and
government revenues. Digital trade reduces the barriers to trade (United Nations
2017).
• According to Lopex-Gonzalez (2021), it includes:
− Increased traditional trades (lower trade costs) across all sectors (natural
resources, agri-food, low-tech and high-tech manufacturing and services).
− More digitally ordered parcels domestically and crossing borders, with
implications for MSMEs (Micro-, small and medium-sized enterprises) and SMEs
(small and medium-sized enterprises), individuals (making trade more accessible)
and Customs and related authorities (managing an influx of perishable goods).
− More digitally delivered trade, including new services (e.g. intermediation or
cloud computing services) and smaller value services (Apps), often delivered
through new technology (platforms).
− More bundled or ‘smart’ products combining the characteristics of goods and
services and constantly connected
− More cross-border data flows that underpin all digital trade transactions but raise
new issues (privacy, national security, intellectual property protection,
cybersecurity, industrial policy).
3
• Security, transparency, and efficiency in supply chains will increase (Ha and Lim 2014).
• Digital support is more reliable. Using paper with ‘wet’ stamps and signatures
introduces human error, creating hold-ups and stalls the movement of goods (APEC
2010).
• Digital trade reduces border delays (United Nations 2014; APEC 2010).
• Digital trade can re-engineer procedures, increase transparency and accountability,
and improve governance (United Nations Economic Commission for Europe 2006).
• MSMEs and SMEs will experience cost reductions and simplification of procedures,
becoming more competitive, particularly with perishable goods (OECD 2019b).
• Digital trade lends itself to improved risk analysis, which helps prevent fraud and non-
compliance (United Nations Economic Commission for Europe 2006).
• Digital trade brings in a degree of automation that improves and better utilises skilled
labour for productivity gains (OECD 2019a).
• A shift to digital trade improves the reliability of data enabling better informed
decisions and better forecasting of demand (OECD 2019a).
The main barrier to a movement toward a digital trade environment are costs and a lack of
understanding. While these costs are small, they are fixed and tend to be a higher
proportion of MSMEs and SMEs budgets than for larger companies. So while it makes
business sense to transition smaller businesses, they can be reluctant to transition as they
are typically short of cash.
These issues are significant barriers and will be examined in more detail later in this paper.
In brief, this problem can be mitigated by:
• An outreach programme to MSMEs, indigenous firms/entities, and women-led firms by
regulatory authorities detailing how to go about approaching a paperless interface.
This will address the lack of understanding.
• Demonstrating – possibly using MSME case studies – the value-add for all stakeholders
of increasing paperless trade. This is necessary since many small companies have
preconceived fears of exporting. There is a need to dispel those fears and demonstrate
how in practice, they can navigate the hurdles.
It comes as no surprise to those working in the supply chain that the cost reductions are
significant. Examples given at a recent virtual APEC seminar in Wellington showed that a
single shipment could pass through 30 different organisations, with up to 200
communications about that shipment. These communications are impeded if they use
systems that do not talk to each other, e.g. pieces of paper. If a form is missing or there is a
problem with some information, then delays are inevitable.
1
2.3 Government to government processes increase complexity
Cross-border movement of data is a key prerequisite of trade. It is the data flow that
identifies the specific trade, authenticates the products involved, allows for payments,
coordinates logistics, and is the key component for trade facilitation automation.
1
Comment made in a recent APEC Paperless Trade seminar, 18
th
June Wellington 2021.
4
It is this movement of data that allows firms of all sizes to participate in trade. And as trade
grows and becomes more specialised, it is increasingly important to participate in cross
border trade to ensure firm growth and survival.
For some governments, this is highly problematic since:
• It creates challenges for government entities within a country/region and requires
sharing information across borders with other governments (which will require a new
legal framework). Many of these organisations have done things the same way for
decades, and it is a challenge for them to change, i.e. in some countries, we are seeing
attempts to go back from digital methods to paper-based trade as the pandemic
recedes.
• There are vested interests within regions that benefit from paper-based processes for
exchanging trade data and will oppose digital trading since it removes barriers to
competition and introduces more transparency.
• There are concerns about the use and, especially the misuse, of data, amplifying the
need for privacy protection, digital security, intellectual property protection,
regulatory reach, competition policy and industrial policy.
As a result of the data security point, regions have been adopting and adapting regulations
addressing the movement of data, often introducing new measures that put conditions
around the movement of data across borders or, in some cases, measures that mandate
that data is stored or processed in specific locations (data localisation).
To control cross border data, there has been a patchwork of rules and regulations
implemented, making it difficult to consistently and effectively enforce public policy goals
such as privacy and data protection across different jurisdictions. And it is also more of a
challenge for firms to operate across markets, affecting their ability to internationalise and
benefit from operating on a global scale. The internet is global and borderless, but
regulations are not.
Governments have started to use a range of instruments to ensure that, upon crossing a
border, data is granted the desired degree of protection or oversight. However, there is no
single mechanism to enable what has come to be called ‘data free flows with trust’.
Supporting this are:
• A range of unilateral mechanisms for safeguarding cross-border transfers. Most
countries incorporate some form of safeguard into their data transfers, but they go
about it differently.
• Plurilateral arrangements that aim to generate consensus around privacy and personal
data protection, including in relation to international transfers. New Zealand, Chile and
Singapore have signed the Digital Economy Partnership Agreement (DEPA), with the
Republic of Korea and Canada looking to join. The DEPA aims to take advantage of
digital trade opportunities.
2
Increasingly more trade agreements are starting to take account of international digital
transactions, with a good number having binding commitments on data flows. There is also
more consensus among governments on the dual goals of protecting data and facilitating
trade flows across borders.
2
China has also signaled that it wants to join the DEPA.
5
More convergence is also occurring around the principles underpinning domestic privacy
and personal data protection frameworks. Instruments used to control cross border trade
are also becoming more standardised. The emerging international agreements underpin
this.
This convergence is critical since the aim is to ensure that closed systems do not emerge,
and interoperability is built into existing and new systems. This is a key driver for the
digitisation of trade information flows (along with security).
2.4 COVID-19 presented an opportunity for business and government
Maintaining trade during the pandemic has been a major challenge for governments. As a
result, there has been a major slow down in the supply chains as lockdowns and illness
stopped staff coming to work, and freight capacity was severely reduced.
In 2020 and 2021, the impact has been dramatic, and trade volumes plummeted. All modes
of transport are being impacted:
• Most airfreight travels in the holds of passenger planes. These planes virtually stopped
overnight as the pandemic took hold and travel stopped. Air freighters have
experienced strong demand, and as a result, their prices have risen dramatically.
• Processing of paper documents relied on air services. With the curtailment of air
services, goods were stuck in ports all over Asia without the right documentation and
little chance of paper documents reaching their intended destination.
• Sea-freight is the main transport mode for international trade – it literally does the
heavy lifting. Cargo trade slowed dramatically as the pandemic reduced the number of
people on wharves, some dockings were reduced, and some crews were quarantined.
An encouraging consequence of the disruption of the processing of paper-based trade
information flows has been the rapid introduction of digitalised trade initiatives under
temporary (crisis) legislation and the urgent roll-out of automated processes underpinned
by new technology.
This has accelerated the adoption of digital trade beyond what was envisaged at the end of
2019 (McKinsey & Co 2020, Liang 2020). McKinsey & Co assert that the pandemic has
pushed digital transformation forward by at least three years (McKinsey & Co 2020).
6
3 System design: trust is everything
Providing the multiple benefits described in this paper requires complete trust in the
systems used. Without that trust, the benefits are severely curtailed or are unable to be
realised.
Before we look at the various systems that enable trust, it is important to emphasise the
critical relationship between value creation and trust.
The literature starts with the premise that lack of trust creates transaction costs as data has
to be verified by cross-checking. Contracts are used to forestall opportunistic behaviour
from counterparties and other players, often by adding bespoke processes for checking
compliance and imposing penalties for non-compliance.
It follows that the role of trust can be used to negate the need for contractual terms or at
least create a common, widely accepted standard for these terms – this is particularly
useful if the parties are repeatedly transacting with each other. This also can be seen as a
form of competitive advantage that others cannot replicate simply in supply chains.
3.1 A reduction in transaction costs
The development of trust improves the ease of trading (trade facilitation) and has a specific
economic benefit since it reduces transaction costs in supply chains.
The study of transaction costs in economics is closely associated with Williamson (1975;
1985) and North (1990) Transaction costs can be defined as:
“...costs associated with conducting exchanges between firms... {these] ...can be
search and contracting costs [and] contracting costs, or monitoring and
enforcement costs.” (Dyer and Chu 2003)
Trust can be described as the lubricant that improves trading conditions (Lorenz, 1998). In
transactions, contracting parties can act opportunistically to the detriment of the other
party. The presence of trust can avoid the difficulty and expense of drafting comprehensive
agreements to avoid such opportunistic behaviour.
3.2 Trust reduces risks
Risk reduction is another benefit of trust since it reduces uncertainty around transactions
(Yeung et al. 2009, Wang et al. 2011, cited in (Zhang and Huo 2013)).
Trust is critical for mitigating exchange hazards and engendering cooperation among the
supply chain partners since it reduces the uncertainty of a partner’s actions. Digital trading
techniques can reinforce trust with structured payments as goods move from one port to
another.
Zhang and Hou (2013) further find that researchers consider trust relationships as crucial
for supply chain integration. Once developed, it can be a critical tool in supply chain
management. It also can be mutually reinforcing, opening up other trade opportunities.
7
4 The opportunities – getting the best out of a COVID situation
The pandemic has caused major changes in government, business, and individual
perceptions of trade and how it can be conducted. The New Zealand government has
signalled that it wants:
• To operationalise trade agreements such as the DEPA to drive digital trade initiatives.
• Trade agreements to require open systems that allow all permissioned parties entry
into the digital trade system. The key to an efficient trading system is interoperability
that allows digital data to flow across different digital platforms.
The mix of government and private sector engagement required to deliver open systems
has not been determined and is likely to vary with the quality and maturity of international
trade relationships and agreements. However, we know that digital trade offers very large
benefits spread across the global value chain. These benefits are explored below.
4.1 The types of benefits that digital trade provides
4.1.1 Productivity improvements
Productivity gains are a significant benefit for all participants in the supply chain (GVC).
The TradeWindow product offering reaches back into a firm’s accounting systems (the
source) to collect the original documents that generate the trade. If permissioned parties
are examining one set of documents (the single source of truth), it eliminates disputes
about authenticity and the need for cross-checking. This is also helped by offering products
that digitise internal operational processes (this has the potential to transform and shape a
firm’s trade document system).
Typically, in the back office:
• Exporters require the creation of export and compliance documentation. This includes
phytosanitary documents.
• Freight forwarders and customs brokers require an enterprise resource planning
system that organises day-to-day business activities.
In these types of digital systems, the productivity gains can come from avoiding mistakes in
transferring data from one system to another or ensuring necessary documentation is
prepared and accessible, providing a single source of truth with no duplication. It can also
enable the re-organisation of a firm's back office to create an automated trading system.
There are one-off gains from an improved automated back-office system, short to medium
term gains from moving resources away from export document creation to other activities,
and continuous ongoing gains from innovation as the ability to trade becomes easier, and
thus the opportunities for increased trade grow.
4.1.2 Improved connectivity
Increased connectivity can transform links between firms and countries and redefine the
relationships between trade and competitiveness. These are otherwise known as ‘network’
effects. The more connections, the more opportunities that are possible.
8
We do know that poor connectivity can mean high costs, low speed, and high uncertainty
and can increase the risk of exclusion from trade. Therefore, successful participation in
trade requires efficient cross-border linkages and successful resilient and efficient domestic
segments of supply chains.
As an example, IATA estimate that a 1% increase in air connectivity is associated with a
6.3% increase in exports and imports
In digital trade connectivity means that data can be securely shared with any permissioned
parties along the supply chain. This is a major step forward relative to wet
stamped/signature paper trade. This is important because parties can trust that the data is
accurate and free from being tampered with en route. Also, as a by-product, the data flows
can be monitored remotely in real-time.
Communication along the marketing chain will be impeded if data cannot be transferred
between systems (showing the importance of interoperability). In a paper trade, if there is a
missing or mis-specified piece of information, delays occur.
Increased connectivity can also occur where an importer is in a situation of elevated risk.
Trust with such an importer can be built up with staged payments. Money can be released
for part payment as the goods reach certain milestones, e.g. goods are with the shipper,
goods are en route, the goods have arrived, and then goods are released to the importer.
Therefore permissioned parties such as banks, shipping lines, logistics companies,
government agencies, customers and other supply chain participants are enthusiastically
prepared to engage in digital trade arrangements.
In this respect, clearance times can be reduced dramatically. In a recent trial, border
clearance of kiwifruit to Taiwan was reduced from two days to a matter of one or two
hours.
Having all the documents in the same place and trusting those documents means that
clearances can be made quickly.
4.1.3 Visibility (transparency) improves supply trade integrity
Visibility or transparency underpins the integrity of the supply chain and assures supply
chain partners and government that the product “is what the label says it is”.
This is critical for government authorities since it ensures the product description and
reduces the risk. This means they identify and stratify goods crossing the border according
to their risk profile and tailor their monitoring resources to equate with that risk – this is an
allocative (matching) efficiency gain for government.
As products become more tailored to niches within specific markets, importers,
distributors, and customers demand more product specifications. This is particularly
important for food and beverage markets since high value items are becoming more
profitable. It is also becoming increasingly important for supply chain partners. As part of
building a unique product offering, traceability is an integral part of the product story.
Digital trade assists in telling that story – the provenance story – around products since:
• Consumers want to know how a product is produced for a whole range of ethical
reasons.
9
• Wholesalers want the information for compliance reasons – California, for example,
has a chain of custody requirements – for goods imported – especially food.
TradeWindow digital trade captures this data, e.g. Greenlea Premier Meats have a
customer in the United States called Pilot Brands. Pilot Brands require information on how
the meat was handled at each stage right back to the abattoir.
In this respect, digital trade comes into its own with short shelf-life goods. Vaccines and
food and beverage products benefit from accurate and detailed information that digital
trade can provide for permissioned parties. In this way, visibility underpins and reinforces
connectivity since surety of what is “in the box” speeds up delivery.
It is also not surprising that firms that produce products with a short shelf-life have been
earlier adopters of digital trade processes and products.
4.1.4 Improves ability to forecast activity
Digital trade generates a lot of useful data that can be used to predict future demand. Data
can be used to develop models to predict how demand at various points in the supply chain
(or GVC) behave. This is important since:
• Those that can forecast more accurately the underlying business drivers (both external
and internal) are better able to respond earlier.
• Increasing disruption means that traditional methods relying on historical patterns are
less relevant. Digital trade data is grounded in more granular data specific to the trades
that companies wish to forecast.
• The growing complexity of supply chains (including volatility) means that the data
generated by digital trade can make sense of the new business realities.
Smart software has the potential to improve productivity gains by improving tracking
systems, enabling companies to optimise logistics, forecast demand more accurately and
make supply chains more resilient. This leads to better decisions that improve the
marketing chain efficiency, e.g., ensuring you have access to shipping containers in a timely
fashion (Deloitte 2020; J. Holbein 2021).
4.1.5 Trade for all could come closer to reality
The New Zealand government has a ‘trade for all’ agenda to ensure that a spread of New
Zealanders can participate in trade. The agenda considers a large number of MSMEs and
SMEs that could potentially be involved in exports.
While the benefits of digital trade are well known, there are barriers to take up by MSMEs
and SMEs:
• Fear of the unknown. It is sometimes difficult to know where to start. Being
overwhelmed means they are reluctant to spend money on systems that will connect
them to digital systems.
• Resources are required. Many MSMEs and SMEs suffer from a lack of capital. They do
not have the capability (understanding and clarity) to take advantage of digital trading
systems. So, it makes it hard to export, but it also makes it difficult to develop and
connect with customs procedures that change as trading conditions change.
10
• A lack of support. MSMEs and SMEs do require more assistance to connect with digital
systems. Where bigger companies can employ staff that specialise in this area, MSMEs
and SMEs do not – it must be part of someone’s role. Effective participation of
MSMEs/SMEs requires tailored assistance.
• Working guides. There is a lack of detailed ‘how-to guides’ or examples of how other
MSMEs/SMEs go about entering a digital trade environment.
• Coping with services. For indigenous companies, physical goods may only be part of
the offering they have. They may have an interest in exporting IP, which needs to be
protected.
Underpinning these issues is confidence in a new system and the capacity to recognise and
realise the potential benefits. Confidence is hard to earn, must be built up over time, and is
very easy to lose.
11
5 TradeWindow products that support digital trade
5.1 The design of TradeWindow’s offering is underpinned by trust
The design of TradeWindow products starts with the need for the development of business
trust. Trust is not a commodity but requires a demonstration to prospective clients of
reliable delivery on commitments which builds the confidence in the system that is the
basis for trust.
To establish credible commitments, TradeWindow has embarked on a deliberate strategy
to engender trust from market participants. This credibility building comprises reputable
shareholders, system integrity, and compatibility with government objectives, systems, and
processes.
As part of this strategy, TradeWindow has acquired the following certifications:
• ISO 9001 quality management systems. This shows the business operates internally in
a way that the products meet customer and regulatory requirements.
• ISO 27001 security standards. The information security management framework
includes all legal, physical and technical controls involved in TradeWindow’s
information risk management processes.
TradeWindow’s shareholders required its processes and systems to be subjected to
penetration testing by a reputable IT advisor as part of its security calibration.
Because of its bank connections (both shareholding and professional dealings), extensive
due diligence, endorsement by regional government and central government, and its
international connections, TradeWindow has been admitted to a number of organisations
that provide further endorsement of its credibility and capability:
• The international bank messaging network (SWIFT). This means that they can intercept
and read bank messages. It means they can provide permissioned supply chain
participants with faster notifications on letters of credit being issued.
• Participation in trials/pilots that demonstrate the speed of digital trade processes, e.g.
a trial of kiwifruit to Taiwan, reduced border hold-up times from 2 days to a matter of
a few hours.
TradeWindow has developed a suite of products that rely on trust to create digital trade
services. These can involve:
• Simply entering data
• Tracking shipments in real-time around the world
• Showing the provenance around a product in the supply chain.
TradeWindow recognises that interoperability is a key issue within the system. “My
customer’s customers may be operating a different system”, which means to operate
efficiently (i.e. satisfy the needs of my customer), all systems need to be able to
communicate with each other.
To capture the benefits of digital trade, TradeWindow has developed several products
tailored towards customer types.
See Appendix A, which sets out how TradeWindow products interconnect.
12
5.2 Cube is the core of TradeWindow digital trade offering
At the core of a suite of TradeWindow products is Cube. Cube enables supply chain
partners to securely share the data directly from their financial systems with permissioned
parties. These parties can include banks, shipping lines, government agencies and other
supply chain partners. Other products offered by TradeWindow are essentially an add on to
Cube.
Its advantages are:
• Security. Cube provides secure access for permissioned parties and is based on
blockchain technology. It mitigates the risk of documents being tampered with.
• Government recognition. The approach taken by TradeWindow and other like
organisations (in New Zealand and overseas) is sanctioned and promoted by selected
governments.
• Stakeholder buy-in and collaboration. This helps bring partner trust and confidence,
reducing transaction costs.
• Seamless integration with clients’ core accounting systems. This allows for a single
source of truth based on the original documents that generate the trade.
• A suite of customised documentation solutions described in more detail below.
5.3 Systems that work hand in hand with Cube
These systems aim to simplify and streamline export compliance, reduce errors, customise
export documents (can include phytosanitary documentation), and provide direct
integration with authorised supply chain participants. These products include:
• Prodoc. A customised set of export documents required for digital trade. This
reorganises the information necessary to ensure export compliance. This is
TradeWindow’s main digital trade product.
• For freight forwarders (Freight) and customs brokers (Speedy), TradeWindow has
created an enterprise resource planning system to assist in the efficient movement of
digital documents.
• Express doc. A generalised version of prodoc for small companies getting into trade
(typically with small volumes). It reaches into the Xero accounts of a company to
create the export compliant documents required. TradeWindow also offers a
mentoring service that assists companies to organise their export process and
associated documentation.
5.4 Products that create further value
These products are essential in conducting digital trade since they share information with
supply chain partners in a form compatible with digital formats. Other products that bolt on
to Cube include:
• Origin automates the certificates of origin for FTA and non-FTA regions. It increases
the speed of processing, assisting with connectivity.
13
• Assure provides end-to-end traceability that allows firms to detail how products are
made, transported and stored. It also has functions that make it difficult for products
to be counterfeited.
• Booking manages ocean schedules and manages bookings that reduce errors, provide
updates on container events and arrival times, is consistent with manifest filing rules
and connects with all major shipping companies.
• Finance manages the exchange of documents and efficient payment systems and can
provide access to finance.
• Insights is a planning tool that uses real-time demand data to assist in forecasting
purchasing behaviour so that companies can match resources to when demand is likely
to occur.
5.5 Supporting a single trade window
Digitisation of trade information can dramatically improve the efficiency of trade and offers
possibilities for new trades. Like other areas which have been slow to adopt integrated
systems that update in real-time (e.g. health), a more powerful story about the
opportunities of increased trade (i.e. increasing trust for all permissioned parties) can be
developed as the system is adopted and its benefits are demonstrated.
Also, like health, there are strong forces that are challenged by digital trade. One strategy
to overcome reluctance is to demonstrate how digital trade works. The primary way to
develop this type of demonstration effect is to connect with like-minded jurisdictions.
Taiwan and Singapore are prime candidates.
Singapore is leading the way. They have approved laws that set out how digital trade can
operate (i.e. Is legally binding). By connecting with Singapore through the DEPA, New
Zealand intends to develop a digital approach to trade that can be replicated more widely.
While this approach has yet to be developed, it will be a whole of government undertaking
that involves identity security, phytosanitary and other requirements for short shelf-life
products, and the requirements of Customs.
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6 Digital vs paper trade
6.1 Introduction to the approach
We have used a cost-benefit framework (CBA) to examine the value of digital trade if rolled
out to all New Zealand trade.
CBA is a long-established technique intended to identify the economic efficiency of a
proposed project or policy change. Efficiency is broadly about maximising outputs obtained
from available inputs, but there are different variants used in economics:
• Technical efficiency refers to the most cost-effective way of providing a given service,
for instance, reducing the cost of paperwork for trade per consignment.
• Allocative efficiency refers to the ease with which resources can move across an
organisation to their most productive uses. For instance, reducing paperwork also
means organisations can focus on new services or find ways to improve existing
services for customers.
• Dynamic efficiency refers to innovation and changing to new activities over time.
If the introduction of digital trade innovations can reduce business trade costs, it will
improve technical efficiency. To the extent that it shifts resources from one less productive
activity to a more productive activity, it also improves the allocative efficiency of resource
use. If it also allows new, more efficient ways of trading, then it improves dynamic
efficiency over time.
A CBA proceeds by comparing effects and outcomes associated with introducing new
technology against what would have occurred under a counterfactual, i.e. without digital
trade. This counterfactual can be described as projecting the status quo into the future as
supply and demand conditions change.
Digitisation improves the efficiency of trade information flows through the following
effects:
• Connectivity refers to the ease of making other trade connections and building a
network of connections. The easier that trade becomes, the more likely volumes will
increase of both imports and exports
• Visibility and traceability of the transaction by permissioned parties cuts down on
confusion and underpins confidence in the documentation of the product being traded
• Predictability refers to the amount of fine-grained trade data generated by digital
trade. Using this data to predict the impacts of disruption or just narrowing the
confidence intervals around demand forecasts can significantly benefit firms
• Inclusiveness refers to the ability of digital trade to lower barriers to entry to trade. If
trade is easier, then participation rates by SMEs and MSMEs can be higher, allowing
them to reduce risks and potentially increase revenue.
15
6.2 The counterfactual
In setting up the counterfactual, we need to consider:
• What baseline do we use? This is relatively straightforward since we are comparing a
situation with and without digital trade. Although some large New Zealand firms must
be some way along the digital trading adoption spectrum, the government has assisted
this process by developing a single trade window and developing the secure export
scheme (SES). This means we have adjusted the benefits (reduced them) to take
account of these progressive processes. To be conservative, we have reduced the
benefits expected by 40% over the next ten years
• Uncertainty about the impact of initiatives that would emerge without digital trade.
There may be a number of credible counterfactuals. The one we assume here is open to
question and should be treated as a ‘work in progress’. We treat the counterfactual here as
a tentative ‘peg in the ground”.
We assume that initiatives such as those set out by TradeWindow were not available, then
paper trade would be the dominant way of trading. Although we acknowledge that some
exporters will already have in place systems similar to or close to digital trading systems,
e.g. given the size and frequency of Fonterra’s dairy trade, you would expect that there are
many systems adopted by Fonterra that are close to digital trading systems. We are also
aware of other big exporters moving towards digital platforms in the near future.
Regardless, under the counterfactual, firms are likely to pursue their own initiatives to
reduce costs of trade. They will also incur costs of investing and running the associated
systems and processes.
A lack of information means we cannot identify such actions and thus cannot identify these
costs and effects in any credible way. Instead, our approach assumes that both the full
costs and the full benefits would not have occurred in the absence of digital trade
management.
6.3 The players involved
This is a ‘partial’ CBA in the sense that some effects will be too difficult to quantify reliably.
For instance, there may well be a benefit to society from a rise in the quality of digital trade
service – since more taxes may be paid on a higher volume of trade. While we can identify
these benefits, given time and resources, it is not feasible to value them in economic terms.
For practical reasons, the analysis has concentrated on quantifying readily quantified and
valued effects and describing the effects that cannot be readily quantified or valued in a
qualitative way.
From the feedback from stakeholders, the experience of TradeWindow, journal articles and
other published material, a number of costs and benefits have been identified that need to
be considered in the CBA, whether they can be quantified or not. Four groups are
considered to be important:
• Customers. The main benefits for customers are the potential to reduce waiting times,
increased security, and an incremental improvement of being able to manage their
businesses
16
• Businesses engaged in international trade. There are multiple benefits to the
improvement of digital trade modules. It will improve efficiency, transparency,
connectedness, predictability, and security.
• Government. This will assist government in its ‘trade for all agenda’ (by lowering
barriers to trade) and allow them to focus on activities that support trade, such as
outreaches to smaller firms and security of the trading system (see section 4.1.5
• Third parties. Banks, logistics companies, and other permissioned parties will receive
information more quickly, and it can be trusted. This will allow adjustments to their
business models that improve efficiency
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7 The benefits of digital trade
Paper-based trade systems have a number of significant drawbacks that mean that
transferring to digital systems will result in substantial benefits. These benefits have been
brought into stark contrast during the pandemic when it has not been possible to deliver
the right paper (with wet signatures and stamps) to the right ports in the appropriate
timeframe.
A description of these benefits has been set out in the previous section.
7.1 Valuing the benefits
We have used proxies from the literature and previous work to illustrate the impact of
digital trade. The estimates are then calibrated to demonstrate the level of
digital/automated trade already occurring, i.e. the more digital trade occurring now, the
less the benefits as we move to a ‘total’ digital trade environment.
Below we set out the estimates for the various benefits.
7.2 Productivity
Improvements in productivity drive growth within an economy. Here we focus on three
main areas where benefits fall and make some general estimates to understand the
magnitude of benefits involved. These productivity estimates are based on the New
Zealand Commerce Commission’s experience when evaluating public benefits and
detriments under the Commerce Act. The estimates involve examining the productivity
gains from introducing digital trade (where paper trade existed) (NZ Commerce
Commission 1988).
Three types of productivity gains are important:
• Technical (or cost minimisation/scale impacts). Digital trade provides a ‘one-off’
opportunity to reduce costs per unit of trade sales. This is a critical issue for New
Zealand entities since we tend to be smaller in size, and the fixed costs can be
significant barriers to entry. By creating a trading environment where businesses can
almost seamlessly move between markets can reduce costs by as much as 10–12%
(refer to the business case studies on TradeWindow’s website)
• Allocative efficiency examines whether resources are applied to their best use and how
those resources are used for different purposes (Matching). Maintaining the ‘optimal’
mix of resources is a difficult task for firms at the best of times. However, digital trade
can assist this process since it automates skilled labour-intensive processes. This can
take time to adjust, but it can benefit firms by at least 5–10% of turnover. These
benefits are realised over 1 and 5 years.
• Dynamic efficiency, or innovation, is the most enduring benefit since it consists of a
myriad of small, sometimes imperceptible changes to economies, industries, and firms
that advance economic performance. Economics has yet to develop a way of generally
assessing dynamic efficiency because of the data difficulties of measuring performance
over time. However, since dynamic efficiency is about maximising the present value of
current and future welfare, a dynamically inefficient economy will clearly have less
18
economic advancement over the long run. Digital trade can trigger dynamic efficiency
gains of under 3% per annum
3
on an ongoing basis.
(NZ Commerce Commission 1998)
7.3 Connectivity estimates
We have used the Value of Air Cargo report commissioned by IATA to benchmark
connectivity estimates. One of their main conclusions from this report is that for every 1
percent increase in connectivity, a 6.3 percent increase in trade is expected (both exports
and imports) (Developing Trade Consultants 2016).
The key point for New Zealand-based digital trade is the positive correlation between
increased connectivity and trade. Further investigation into the IATA research and how it
might translate to New Zealand suggests that the correlation will probably overstate the
likely benefits for a ‘market-distant’ country with a small population. The full benefit may
well occur if firms were situated in Europe or other parts of the world (even in some lesser
developed nations), but it is unlikely to generate the same impact for New Zealand.
To further understand what benefits might occur for the New Zealand market, we
tempered the estimates to reflect New Zealand’s isolation and distance from markets.
NZIER (Williams and Maralani 2019; Williams, Maralani, and Welvaert 2020) has also
examined the value of having a Mutual Recognition Agreement (MRA) with an importing
nation. A trade MRA scheme is an agreement between two or more countries that allows
for easy recognition of each other’s border processes. This improves the flow of goods and
services between those participating in the MRA, allowing for fast-tracking of customs
processing. NZIER (Williams and Maralani 2019; Williams, Maralani, and Welvaert 2020)
estimate that the time saved from these agreements for firms on border processing is half a
day on average.
The impact of digital trade is broader than an MRA because it does not rely on having an
MRA with the importing nation. Also, digital trade brings about a more fundamental change
to a firm’s processes allowing for a re-organisation of the structure of compliance that
impacts connectivity in the following way:
• Import and export businesses. Mainly speed to market with fewer hold ups for all
businesses.
• Logistics companies. Allows them to focus on other parts of their business that
improve connectivity since the documentation processes are automated.
• For government, it builds on MRA initiatives, increases connectivity with other parts of
government internally and builds trust and confidence with other governments, and
allows them to focus on other areas that need attention
• Increased connectivity will also increase the possibility of further trade occurring. This
will improve opportunities all along the marketing chain for all participants, including
banking and insurance.
We have used an estimate of 1 to 2% of gross trade.
3
The Commerce Commission (1998) suggests that dynamic innovation costs are roughly 3% of gross output of an industry.
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7.4 Non quantified benefits
There will also be benefits that assist companies to better understand the nature of
demand for specific goods (predictability), visibility and transparency of the transaction,
and lower barriers to entry into trade for SMEs and MSMEs.
Predictability improvements are based on the amount of fine-grained data that digital trade
generates. This data can be used in algorithms to predict demand patterns for individual
products more accurately as the supply chain changes (i.e., in times of disruption).
Visibility sets out the transaction transparently so that permissioned parties have access to
one set of source documents. This avoids confusion about what was said in a particular
email or phone call. TradeWindow also can track and trace goods that enhance the
provenance of goods (by attaching the product history and storage) and mitigate against
counterfeiting by recording when and where product bar codes are scanned.
Digital trade also encourages inclusiveness. By lowering the barriers to entry into trade,
more firms, particularly MSMEs and SMEs, can participate.
We have not attempted to quantify these impacts; however, they represent important
benefits that will sustain digital trade initiatives over time.
In the past, most of this information was expensive to collect, and therefore the cost of
monitoring was high. Lowering the transaction costs associated with collection means that
this data is now worth collecting: radically lower transaction cost = obtaining benefits that
were previously not obtainable, let alone at an affordable cost.
7.5 The costs
The costs are all about obtaining the collective trust that digital trade brings. Businesses can
be reluctant to incur additional costs of joining a digital trading process unless they see an
immediate benefit or believe that benefits will occur over time. These issues can be
significant barriers for smaller entities/firms. To mitigate these issues:
• Requires an outreach programme. TradeWindow has developed a programme
(Academy) that assists MSMEs, and SMEs and a digital product called docs to help
companies starting out on the digital journey. However, if the government is serious
about their ‘Trade for all’ agenda, then some proactive programme/agenda is required
to contact indigenous firms/entities and women-led firms.
• Involves demonstrating – possibly using MSME case studies – the value-add for all
stakeholders of increasing digital trade initiatives. This is necessary since many small
companies have preconceived fears of exporting. There is a need to dispel those fears
and demonstrate how they can navigate the hurdles and make a success of the
endeavour in practice.
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7.6 Summary of costs and benefits
Assumptions for the analysis are set out in
21
Table 2.
The benefits focus on examining New Zealand export trade and are valued in terms of gross
trade over 10 years. We have used a 10-year timeframe since it will take time before
benefits are realised.
Each of the benefits impacts on a different part of the supply chain:
• Efficiency:
− Technical (scale efficiency). It is likely that businesses involved in digital trade will
be required to reorganise their Enterprise Resource Planning (ERP) system. The
ERP integrates management software that manages and integrates a company’s
financials, supply chain, operations, commerce and reporting. Digital trade
packages use the source documents from the ERP system and put them in a form
that importing authorities and other permissioned parties will recognise and
accept. This eliminates document errors, prevents documents going missing, stops
blockages in the supply chain at the border, and provides documents that can be
trusted as the single source of truth by permissioned parties. This is a “one off”
significant gain of between 10% and 12% of trade turnover to supply chain
participants
− Allocative (matching efficiency). Over time skilled staff can be moved to other
parts of the business since issues such as mistakes, missing documents, and other
misunderstandings are eliminated through digital trade. A firm, government, and
other permissioned parties in the supply chain will also move its capacity and
resources to more productive activities. This is worth between 5% and 10% of
turnover over the medium term (1 to 5 years)
− Dynamic (innovation). The ability of firms, supply chain partners and government
to focus on other issues will also increase innovation in the supply chain. These
are small sometimes imperceptible improvements that drive supply chain
partners work on a day-to-day basis. Described by some as the “gentle wind” of
innovation it is on-going. This is worth between 1% and 3% of trade turnover
annually.
• Connectivity gains. Trade begets trade – connectivity is strongly correlated to
increased trade. The easier it is to trade the more trade will occur encouraging more
participants and opportunities. In this way the shift to digital trade works in tandem
with dynamic innovation since increases in trade will generate more opportunities.
Connectivity gains are worth between 1% and 2% of trade turnover annually.
Costs revolve around assisting small businesses into the digital trading environment. These
costs fall on business and government since they will need to develop programmes that
help small firms' transition to digital trade. They have been omitted from the table.
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Table 2 Assumptions that drive the analysis of benefits and costs
Benefit/cost Low estimate High estimate Comment
Benefits
Productivity gains
Technical (scale) 10% 12% One-off gain as entities
transition to digital trade
Allocative (matching) 5% 10%
Medium-term gain over 5
years as firms gradually shift
resources to areas of need
Dynamic (innovation) 1% 3% Continuous innovation that
drives the entity forward
Connectivity gains 1% 2%
Continuous since easier
access to trade increases
trade
Source: NZIER
Table 3 uses export trade between New Zealand and specific trading partners and groups of
partners to illustrate the benefit impact of digital trade. Several assumptions have been
made:
• Gross export trade has been used to illustrate the likely benefits. We have assumed
that trade will increase in each region by 2% per annum over the next ten years. This is
conservative.
• A 6% social discount rate has been used over the 10 years since gains do not just
accrue to the businesses involved in the specific trade. Benefits accrue to
governments, importers, logistics companies, importers and the consumers.
• We have only considered exports from New Zealand and focused on the importance of
perishable trade since the faster perishables move along the supply chain, the higher
their quality in the market.
• We have adjusted the benefits to factor in that some companies already use digital
trading techniques in some of their processes. To be conservative, we suggest that
40% of the benefits have already been obtained.
To illustrate the benefits, we have targeted three regions/countries and country groupings
(see Table below). These are:
• Taiwan, since the first pilot, was conducted between New Zealand and Taiwan last
year, focused on kiwifruit.
• Singapore, since it has already passed laws that mandate the use of digital trade and as
an entrepôt, has the potential to speed up digital trade usage in the Asia Pacific region.
• Members of the DEPA trade agreement (New Zealand, Chile, and Singapore) plus two
countries intending to join the DEPA (South Korea and Canada). The DEPA provides the
architecture under which digital trade can be established and flourish.
• A staged approach to digital trade in APEC where full benefits occur in year 10. This is
to recognise that not all countries are likely to move to a digital trade environment
immediately.
23
We have also provided benefit estimates for other regional groupings and countries in
Appendix A. This includes ASEAN, CP TPP, RCEP, United States and the United Kingdom.
The benefits are substantial since digital trade has the potential to fundamentally
reorganise the way that businesses approach trade, how governments intervene, increase
the participation rates in trade (especially important when most firms are SMEs), and the
ability to generate reliability, trust, and certainty.
For APEC, if all countries/regions joined a digital trade environment over 10 years the likely
gains for New Zealand supply chain participants from New Zealand’s exports would be
between $NZ9 billion and $18 billion. Given that New Zealand’s exports are approximately
$61.5 billion currently this is a considerable benefit. Note that not all of this benefit would
go to New Zealand businesses, there will be benefits all along New Zealand’s export supply
chain.
Table 3 Summary table of benefits
Millions of dollars, PV = 6%
Country/
region
Present value Average yearly gain Comment
Potential benefits
Low High Low High
Taiwan 248 497 30 62 Taiwan is ready to engage
Singapore 199 507 24 63
Singapore has already set
up the legal architecture
DEPA + 2 +1 3,996 8,029 490 1,004 The overarching
architecture gives digital
trade the green light.
China 3,302 12,032 405 1,584
How China approaches
digital trade is pivotal
USA 1,225 2,461 150 308 The US position in world
trade means that they
also have a pivotal role in
the development of
digital trade
ASEAN 1,229 2,469 151 309
Mixed approaches being
adopted. Chinese
adoption of digital trade
will have a major positive
impact
CP TPP 3,579 7,192 439 899 Major players are moving
toward digital trade
UK 269 540 33 68 Stance unknown. Likely to
be very interested
Staggered benefits over 10 years: APEC
APEC 9,000 18,000 1,080 2,216 Per year from staged
increase in digital trade
Source: NZIER
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8 Implications
Of the components of digital trade that could be quantified, results suggest substantial
benefits for supply chain partners. Using export data from New Zealand, the principal parts
of the quantified analysis are:
• Large ‘one-off’ benefits from moving from paper-based systems to digital systems
• Ongoing efficiency and connectivity benefits that continue as barriers to trade are
broken down
• Ongoing benefits from generating large amounts of data at low cost that improved the
predictability of likely demand
• Increased inclusiveness as more businesses are able to overcome the complexities of
trading
• Costs associated with tooling up and learning new systems
• Costs of overcoming the unknown. Most New Zealand businesses are SMEs or MSMEs.
Enticing some of these firms/entities into trade will require time and outreach by
business and government. Understanding their concerns and capabilities is key to
unlocking their potential.
We must stress that there are limitations in the quantified analysis due to the information
available on different aspects. The robustness of the analysis is influenced by the potential
bias in the information provided and the unique trading position that New Zealand is in (i.e.
distanced from markets and small population size).
The figures in this report should be regarded as an order of magnitude calculation rather
than a definitive measure, and the analysis can use improved information if it becomes
available, i.e. as more case studies come to light more evidence on specific benefits will be
available.
25
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27
Appendix A Impact of digital trade
Figure 1 TradeWindow’s products
28
Appendix B Benefits of digital trade for selected countries
Table 4 Summary table of benefits
Millions of dollars, PV = 6%
Country/
region
Present value Average yearly gain Comment
Low High Low High
Taiwan 248 497 30 62 A keen and willing
participant in digital trade
Singapore 199 507 24 63 Has already the legal
framework in place for
digital trade
DEPA + 2 694 1,394 85 174 A natural starting point
for the region
CP TPP 3,579 7,192 439 309 The larger the
participation rates larger
the gains for all
RCEP 6,948 13,960 851 1,746 Similar to the CP TPP and
APEC
APEC 8,817 17,716 1,080 1,746
Similar to the CP TPP and
RCEP
ASEAN 1,229 2,469 151 309 Not all ASEAN economies
are running at the same
speed
United
States
1,225 2,461 150 308
United States is very
interested in digital trade
initiatives
United
Kingdom
269 540 33 68
Potential for this to grow
strongly
China 3,302 12,886 405 1,584 China has just applied to
join the DEPA
Source: NZIER
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.