New US Strategy to Modernize, Coordinate & Secure Global Supply Chain

“In an anarchic world with no central authority, the United States has the ability to either physically force other countries into compliance with violence, or the country can seek co-operative partnerships to reach its goals – partnerships in which it can wield significant influence because it is a great power. The United States has chosen the latter.” (Grillot, Cruise and D’Erman, VJ 2010)

International trade can provide stability in access to goods as well as acting as an engine for growth. As technology improves, the global supply chain becomes more advanced and more actors become involved. The threat of more frequent natural disasters and the potential for terrorism or transnational criminal activities facilitated by global transportation networks, there is an ever-greater need to ensure the security and efficiency of supply chains. This past week at the World Economic Forum in Davos, Switzerland, US Secretary for Homeland Security Janet Napolitano unveiled the latest National Strategy for Global Supply Chain Security (the Strategy). The launch of this updated policy is timely given President Obama’s desire to boost American manufacturing, new bilateral trade pacts with Colombia and Korea and the impending Trans-Pacific Partnership. This post seeks to shed light on the policy and briefly demonstrate the importance of ensuring an operational global supply chain security regime.

Each year 12 million containers are shipped into the US alone. (US Dept. of Transportation, 2009) It is no wonder, then that the Strategy has two primary goals: promote the efficient and secure movement of goods, and foster a resilient supply chain. Security will be integrated as a key component of supply chain operations, but not in such as way as to slow down shipments. For this goal, the US seeks to:

  • Resolve threats early to expedite the flow of legitimate commerce.
  • Improve verification and detection capabilities.
  • Enhance security of infrastructure and conveyances in order to protect the supply chain and critical nodes, through limiting access to cargo, infrastructure, conveyances, and information to those with legitimate and relevant roles and responsibilities.
  • Maximize the flow of legitimate trade by modernizing supply chain infrastructure and pro­cesses to meet future market opportunities; developing new mechanisms to facilitate low risk cargo; simplifying our trade compliance processes; and refining incentives to encourage enhanced stakeholder collaboration.

Furthermore, disruptions to the global supply chain due to natural disasters or disease can have staggering consequences. Therefore to improve its sustainability, the government aims to:

  • Mitigate systemic vulnerability to a supply chain disruption prior to a potential event by using risk management principles to identify and protect key assets, infrastructure, and support sys­tems; and promoting the implementation of sustainable operational processes and appropriate redundancy for those assets.
  • Promote trade resumption policies and practices that will provide for a coordinated restoration of the movement of goods following a potential disruption by developing and implementing national and global guidelines, standards, policies, and programs.

 As with other public government strategies, the Strategy “provides strategic guidance to departments and agencies within the United States Government and identifies our priorities to stakeholders with whom we hope to collaborate going forward.” With the focus on the “worldwide network of transportation, postal, and shipping pathways; assets and infrastructure by which goods are moved from the point of manufacture until they reach an end consumer; and supporting communications infrastructure and systems,” the policy to “strengthen the global supply chain” naturally relies upon external actors (including other states, multinational corporations and multilateral bodies, to name a few) to be successful. As the opening quote suggests, the US does not plan to facilitate detailed actions on its own. Rather, the government is encouraging feedback and involvement “from host governments, industry partners and other stakeholders” to produce the best initiatives and actions to secure the global supply chain.

 There are already frameworks and initiatives in place to facilitate global supply chain security, affecting actors differently. The Container Security Initiative and the SAFE Frameworks of the World Customs Organization (WCO) have been critical to these efforts. However, needing to follow or fulfill requirements of different states can become costly and strenuous for businesses of different sizes. On 1 January 2012, a new version of the Harmonized System Nomenclature entered into force by the WCO as “the world’s global standard for classifying over 98% of goods in international trade”. The WCO is the ideal mechanism for dialogue and implementation of security concepts and standards; the SAFE Framework provides such standards to synchronize varying initiatives. Mutual recognition of security regimes, then, “could become a reality in the future”.

 Compliance with regulations falls on the responsibility of the stakeholders (at various levels in the international trade sector), who therefore they must bear much of the cost.* This increased financial burden can have several impacts upon actors and the economies in general. First, those with more financial resources will be in a more favorable position to comply with requirements over those with less experience or resources. Second, investors may turn away from those countries that are less integrated into the “international transport structures for supply chain security. Third, the lack of funding by the WCO and other international organizations for implementation may lead to marginalization or decreased competitiveness of those less able to incur the necessary costs. Keeping current with customs regulations, fees and security requirements can become burdensome; however the Strategy and its ultimate initiatives aim to speed up rather than slow down global trade, and is anything but inward-looking.

In May 2011, New Zealand and the United States signed a joint statement on global supplychain security cooperation. The Asia-Pacific region has a significant role in international commerce and within the supply chain. The two states saw the agreement as a way forward for further collaboration on similar issues. In fact, through Project Global Shield (launched in 2010), New Zealand, the US and close to 60 other countries “share information with each other to ensure that chemicals entering their countries are being used in safe and legal ways, leading to successful interdictions of a number of suspicious shipments and providing promising investigative leads on the smuggling of precursor chemicals into Afghanistan and Pakistan”.

Overall, “container transit is far from being completely ‘visible’ and safe”.* There will always be challenges to security, or threats to shipments from nature. That the US took its time in developing a cohesive Strategy and plans to continue collaboration and dialogue with stakeholders is a positive move. The Strategy acknowledges cooperation is needed, which is a good perspective for policymakers to have. The aim has been for containers to be inspected and cleared for dangerous and unlawful contents before they get close to US borders, so effective and secure networks will be essential.

For further reading:

Frank Altemöller. “Towards an international regime of supply chain security: an international relations perspective.” World Customs Journal. Volume 5, Number 2. [http://www.worldcustomsjournal.org/media/wcj/-2011/2/Altemoeller.pdf]

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US and China Outline New Year Policies Affecting Home and Abroad

The New Year has started with immediate action in the Asia-Pacific region and Sino-US relations. On January 1, Chinese President Hu Jintao published a highly charged article in the Communist Party journal Seeking Truth about culture and the threats China faces. On January 6, President Barack Obama stood alongside military leaders to launch his administration’s new defense strategy “Sustaining US Global Leadership: Priorities for 21st Century Defense”. Both events were media spectacles spurring speculation and hype among pundits. Across multiple fronts, the US and China are in a stage of ‘transition’, with the current administrations both facing potential (in US) and real (in China) leadership changes at the end of 2012. The contents of Hu’s essay and the Obama administration’s defense strategy demonstrate the leaders’ mutual need to shore up domestic support and enthusiasm.

For some in the US, Hu Jintao’s essay declared a new ‘culture war’ directed at America, harkening back to Mao Zedong. Hu wrote in the essay and speech: “We must clearly see that international hostile forces are intensifying the strategic plot of Westernizing and dividing China, and ideological and cultural fields are the focal areas of their long-term infiltration.” The Wall Street Journal argued that “Hu Jintao has launched another culture-rectification campaign with goals that Mao would recognize: step up ideological struggle and fight back against Western encroachments.” In a response to US reactions, the Chinese Culture Minister quickly replied by clarifying that 2012’s proposed ‘culture work’ does not mean it will “engage in so-called Great Leap Forward”. Instead, China’s plan is to perpetuate soft power and to promote internal and international stability.

I agree more with Damien Ma’s interpretation in The Atlantic that the ‘culture war’ is not meant as an implicit threat to the US. Rather, it is “part of a battle to sustain the confidence of its own people – via nationalist, Confucian tenets, wealth, cultural renaissance or whatever substitute that can be dreamed up — or risk the consequences. The war is, and has always been, about defining the soul of the modern Chinese nation.” Furthermore, the warnings are a call to the Communist Party to remain relevant to China’s populace. The forthcoming political transition at the end of this year and the Chinese population’s growing benefits from economic and technological development led to a fear of waning power and influence. Building on nationalist sentiments and stirring up the public by flexing its diplomatic muscle is one way for Hu’s Administration to calm its nerves.

Meanwhile in the US, the Budget Control Act of 2011 mandated that the Pentagon budget be trimmed by “by about $487 billion in the next decade, a roughly 8 percent decrease.”* The recent Defense Strategy Review is an attempt to redefine America’s strategic interests and goals, and to focus on priority areas for future funding. As the US reaches the last year of President Obama’s first term, withdraws military forces from Iraq and deals with a continuing government budget and wider economic crisis, the country faces a point of ‘transition’ which makes the time ripe for this discussion. By surrounding himself with top Pentagon officials, President Obama tried to strengthen his stance against an unwieldy Congress and direct an image of authority in an election year. The need to reduce the budget was evident on every page of the report, with the key being “Whenever possible, we willdevelop innovative, low-cost, and small-footprint approaches to achieve our securityobjectives”. (p. 3)

Interestingly, at no point in President Obama’s defense policy launch did he mention China. The Defense Strategy Review, on the other hand, warned that China’s emergence could affect the economy and security of the US in a number of ways depending on the path taken. Additionally, China’s military power growth “must be accompanied by greater clarity of its strategic intentions in order to avoid causing friction in the region.” In a menacing tone, the Review said the US would “continue to make the necessary investments to ensure that we maintain regional access and the ability to operate freely in keeping with our treaty obligations and with international law.” (p. 2)

As you can see, budget reductions are a priority, but they do not stand in the way of military readiness and competitiveness. In an effort to sound practical, the Review argued for a reduction in the “cost of doing business”, to which many Americans would agree. However military personnel have sacrificed much over the last decade and will bear the burden of budget cuts: “As DoD takes steps to reduce its manpower costs, to include reductions in the growth of compensation and health care costs, we will keep faith with those who serve.” (p. 7) Cutting health care benefits from veterans has not been as controversial as one may think in Congress however unpopular it may be to the American public; hopefully, this move is not foreshadowing irrational motives sparked by China’s emergence.

As Presidents Obama and Hu pit tough rhetoric against each other to hold or challenge the balance of power, they also seek to prove dominance to their domestic populations. Competing party and government politics have been the main driver of their warnings and stern tones. Economically, China and the US are so interdependent that the leaders’ domestic pandering should not affect their strategic relationship; the US in particular finished 2011 with a negative stance toward China, causing international headaches. But both powers share the mutual interest of stability, and while the US has less concern for other states’ sovereignty than China, the Obama Administration should prevent domestic issues and government in-fighting from leading to a dampened bilateral relationship.

Last year was, and no doubt 2012 will also be, a busy year for Sino-US relations and multilateral cooperation in the Asia-Pacific. On January 7, US Assistant Secretary of State Kurt Campbell arrived in Tokyo to discuss the situation on the Korean Peninsula and said “Even while the United States is making an adjustment in its global military posture, we are intent on maintaining a very strong, enduring military presence in the Asian-Pacific region”. China, likewise, intends to increase its diplomatic efforts this year and boost cooperation in the Asia-Pacific in issues of mutual interest; China’s government is anticipating high-level meetings such as the “Seoul Nuclear Summit, the BRICS Summit in India, the Asia-Europe Meeting in Laos, and the East Asia Summit in Cambodia”. During these meetings, China plans to “enhance strategic coordination and mutual understanding with Asian countries”. With both China and the US boosting diplomatic efforts in the Asia-Pacific, the hope is that eventually the two powers will forge a more cooperative and mutual partnership together instead of solely other neighbors.