By Nate Olson:
It is a bitter irony that globalization has actually made much of trade and investment activity less transparent. The scale and technological sophistication of global value chains, along with their reach across multiple legal jurisdictions, often allow varied forms of illicit trade — from cyber-enabled IP theft to nuclear proliferation — to hide in plain sight. In such cases, government countermeasures are anchored in the wrong century.
In the coming years, these challenges will multiply — and traditional countermeasures will only be further outpaced. It will be crucial to strengthen cross-border governance mechanisms and find more effective ways to harness the private sector’s expertise, resources, and reach. The main imperative in that process will be serving the public interest without undermining economic competitiveness.
The report released today Trade Network Transparency: Adding Market Value to the Nonproliferation Agenda highlights near-term opportunities to do just that by leveraging trade network transparency in both the domestic and international contexts. In broad terms, trade network transparency entails two dimensions of global commerce: business relationships and chain of custody. Historically, most security programs have focused on ensuring a proper chain of custody — that is, the physical protection and integrity of a good at various stages of its life cycle, such as during transport on a container vessel.
In many areas of global trade and investment activity, however, regulators, experts, and advocates are also focusing on business relationships — and the diligence that companies perform to support those relationships. Increasingly, firms are being encouraged — or forced — to assume some measure of accountability for the actions of their business partners. This trend is evident in a number of initiatives that cover the full regulatory spectrum, from “soft law” to traditional, formal legal instruments. In this regard, the international security agenda and efforts to promote various social, political, and environmental goals are increasingly aligned. But durable progress will remain elusive for them all without understanding and harnessing the market dynamic.
The key to unlocking the multifaceted benefits of trade network transparency on both these fronts is “risk segmentation,” a concept that is equally simple and underexploited. By distinguishing transactions that involve high-performing business entities from the rest of the pack, governments and public interest advocates can better target oversight and enforcement. By the same token, companies can actually enhance competitiveness.
For government, the ideas elaborated here represent a natural starting point in building a broader portfolio of tools for managing contemporary proliferation challenges. It is vital that industry remain engaged to ensure that the actual implementation of more innovative governance tools remains consistent with profitability in global business operations. That, in turn, will help make implementation — and the nonproliferation dividend — sustainable.
Nate Olson directs industry initiatives at the Stimson Center and is the author of the new report Trade Network Transparency: Adding Market Value to the Nonproliferation Agenda.