Two (maybe three) things transshipment ports need to know about securing global trade

Introduction

Transshipment hubs have long played a pivotal role in facilitating international trade. However, that role is increasingly under pressure as the relationship between the largest trading nations – the United States and China – transitions from one rooted in cooperation to one increasingly defined by strategic competition. As the global powers enact tit-for-tat trade controls, many with rising extraterritorial reach, transshipment hubs are finding themselves caught in the crossfire.

Robust trade controls and strong compliance mindsets

The transshipment hubs, to varying degrees, have enacted export controls and trade sanctions laws. Such ports will need to keep these laws current and relevant if they are to continue their critical role in the global trading system. The hubs must continuously update and enhance export controls and sanctions laws and inculcate strong compliance mindsets to prevent WMD proliferation given the huge risk to humanity if WMDs get into wrong hands.

The challenge lies in navigating a shifting global trade landscape:

• Diminished multilateral forums: Russia’s invasion of Ukraine has isolated Russia from the West. This in turn has impaired de facto global export control and sanctions rule-setting forums such as the Wassenaar Arrangement (WA) and United Nations Security Council (UNSC). Russia is an important member of both and is able to veto proposals put forth. This effectively renders both forums moribund.
• Shift in trade priorities: The nature of trade and security has changed from being primarily focused on WMD non-proliferation to restricting access by great power rivals to strategic technologies and critical resources. This new imperative is evident as the great powers seek to fill the gap left by the WA and UNSC. The US has been more effective than China in this regard and in a number of instances has coordinated with allies to created new plurilateral controls and sanctions aimed at thwarting China’s ambitions in critical technologies, such as semiconductors and emerging technologies such as artificial intelligence. Consequently, the latest rules primarily reflect the interests of the US.

• Restricting the enactment of new laws on export controls and sanctions to those that primarily target WMD non-proliferation;
• Ensuring that rules and enforcement efforts do not erode the ability of ports to play their trade facilitation role effectively; and
• In some cases, enacting regulations that are geopolitically aligned with their self-interest; for example, countries need to consider their interests when deciding whether to enact local regulations that support the controls of strategic trading partners.

While neutrality is desirable, hardliners in both Washington and Beijing adopt the stance that "you are either with us or against us." In this increasingly confrontational environment, maintaining neutrality may not be possible, especially if a transshipment hub is already part of an alliance of countries with geostrategic alignments that supersede workaday commerce.

Transshipment hubs that successfully enact up-to-date trade control laws with deterrent penalties, actively enforce these rules, and coordinate investigation efforts with other trade authorities around the world will improve their standing with their trading partners by minimizing the risk that unauthorized shipments of controlled goods and technologies pass through these countries.

Effective enforcement of trade controls will bolster the hubs’ standing with global partners by reducing risks of unauthorized shipments. Strong compliance measures will also deter bad actors, focus enforcement on intentional violators, and enhance the ports’ reputations as facilitators of secure trade.

High awareness of extraterritorial trade controls

To mitigate risks, transshipment hubs must prioritize raising awareness of extraterritorial trade laws, particularly those of the US and China.

Outreach efforts should extend beyond large multinational corporations (MNCs) to include local and regional small and medium sized enterprises (SMEs) involved in global supply chains such as traders, logistics providers, financiers, and companies in other industries affected by specific measures. This will require concerted and sustained effort by governments, trade associations, industry groups, as well as consultants and advisors.

While the long arm reach of US trade controls is well known, China’s trade controls are less well understood. China has overlapping trade control regimes that incorporate elements of US extraterritorial controls, such as the system of designating entities of concern and anti-boycott rules. Given the emphasis on China’s military-civil fusion strategy, there is increasing concern that Beijing will rely on a suite of coercive economic measures including export bans, opaque import restrictions, raids on offices of companies based in China, and detentions of foreign nationals working onshore.

Staying neutral (as long as possible)?

The first two action items set out above are in my view essential for all transshipment hubs. This third item is a little different.

Assuming that a reasonable degree of geopolitical neutrality and keeping channels open are cornerstone principles of a strong transshipment hub, this third goal of calibrating trade controls to walking the tightrope between geopolitical tensions and economic competitiveness is arguably the most difficult of the three things that transshipment hubs must do.

It is inherently in the interest of international trade for such ports to maintain fair treatment to all customers and allow for the free flow of trade without being caught up in big power tussles.

Regardless of their final iteration, articulating clear principles will provide transshipment hubs with a compass to decide how they adopt and implement trade controls and the treatment of extraterritorial trade regulations. These principles will enable a framework to explain adopted trade controls to trading partners that use these ports, at least until a transshipment hub is forced to take sides.

[The second paragraph of this article was amended on 17 February, 2025 to provide additional context.]

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