SMEs have less capacity to absorb financial risks -ADB report

Small and medium-sized enterprises, which are among the largest employers in both developed and developing economies, are limited in their ability to overcome customs, documentation, and infrastructure barriers due to their lower capacity to absorb existing financial risks.

Ultimately, the costs of these roadblocks, whether tangible or not, are transferred in large part to consumers, according Asian Development Bank’s recent report on ‘Borders without barriers Facilitating Trade in South Asia Sub-regional Economic Cooperation(SASEC) Countries’.

The report says one way in which consumers, manufacturers, retailers, and producers can support the trade facilitation process is through their active participation in buttressing data flows, which in turn reduces information asymmetry and lowers coordination and transaction costs. The increased flow of information contributes to improving access to trade opportunities and consumer preferences, which can reduce the cost of entry into the market, especially for small and medium-sized enterprises.

In addition, the report says participation in digital platforms increases the flow of goods and services that were previously nontradable. Digital trade and connectivity thus enables the entry of new actors into cross-border transactions, thereby buttressing trade facilitation.

The report also added that from an economic point of view, there is no reason to believe that Trade Facilitation Agreement (TFA) implementation has the potential to cause balance-of-payment problems for developing economies; the balance of payments is primarily determined by macroeconomic factors, not trade policy of any type.

“Similarly, empirical work suggests that trade facilitation could have important gains for smaller firms, not just large multinationals. Finally, the structure of the TFA means that developing economies do not have to take on onerous obligations without support; they can decide on their own implementation time frame and can seek assistance if need be. There is a clear economic logic behind the idea that economies should be ambitious in implementing the TFA. Nonetheless, the TFA incorporates an unprecedented degree of development flexibility in WTO terms.” the report said.