Trade Costs and Facilitation:

Data and Indicators to support

action-oriented research

Asia Pacific Public Sector Linkages Program

May 17, 2012, Ho Chi Minh City, Vietnam

John S. Wilson

Lead Economist

International Trade and Integration

Development Economics Research Group, World Bank

1

2

Overview Trade and the Global Economic Recovery

Trade Facilitation and Supply Chain Performance

World Bank Trade Assistance Strategy

• Operations and Research

Data and Indicators

Policy Research example

• Cutting costs and raising transparency in APEC

Trade and the Global Economic Recovery

3

• Global trade growth in 2011 Q4 decelerated sharply • Robust demand from developing countries key contributor to global trade growth

2012 • Eurozone import demand decelerated at 30.1% (Jan 12) and 22.7% (Feb 12)

• Developing country demand accelerates above 30% (through Feb 2012)

Source: World Bank Development Prospects Group. Developing Trends April 2012.

Trade Outlook in East Asia

4

• Despite growth from China, exporters in the Philippines, Malaysia, Indonesia, and Thailand and Vietnam confront slowing import demand from OECD countries

March 2012 • China reports largest monthly trade deficit in a decade

• -6.9% = Export growth Jan-Feb (from year prior)

Trade As Engine of Growth

Rise of South-South Trade – Harnessing growth from emerging markets

5

0

5

10

15

20

25

30

1960s 1970s 1980s 1990s 2000s

Developing Country Imports from Other Developing Countries (% of Total Imports)

Source: WDI

% o

f Tota

l Im

port

s

Trade and Economic Recovery

Global rebalancing - key to sustained growth Implies

• Increase in net exports for country with large external deficits

• Increase in domestic demand (imports) for countries with surpluses

In the 28 countries with policy-induced surplus reversals over past 50 years, imports rose an average of 4.2 percentage points of GDP on average (IMF WEO 2012)

Along with Rebalancing – must Cut

Trade Costs

• High trade costs create “thick” borders • Domestic barriers (corruption, etc) and external barriers •Capacity Constraints •Transparency

Why do Trade Costs Matter?

Trade transaction costs considerable • 1-15% of the value of traded

goods (OECD)

• Cost to export in Sub-Saharan Africa = USD 2,492 per container; 1,106 USD in OECD countries (World Bank 2012)

Reducing trade costs can produce substantial returns………….

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Trade Facilitation – Not just tariffs/quotas, but behind the border issues (Mann, Otsuki, Wilson 2004)

Customs Environment

Business Environment and regulation

Transparency

Harmonization of Standards

Infrastructure

World Bank Trade Strategy

June 2011- In context of financial crisis and importance of trade to overall growth and development, World Bank releases first official trade strategy. Research key to implementation.

Four Pillars:

1. Trade Competitiveness and diversification

2. Trade facilitation, transport logistics, and trade finance

3. Support for market access and international trade cooperation

4. Managing external shock and promoting greater inclusion

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10

World Bank Trade Lending

FY2001 - $2.6 billion

10 Source: PREM-Trade, 2011.

Trade Facilitation/

Market Access

42%

Export

Development

and

Competitivenes

s

29%

Regional

Integration

26%

Technology

Diffusion

3%

Type of Activities funded by World Bank Trade-related Lending (FY 2010, Percentage of Total Lending)

International Trade and Integration Team,

Development Economics Research Group

Mandate: Expand knowledge about the relationship between trade costs and

private sector growth and export competitiveness

Through

Support for Data and Indicators

Research and Relevant Policy

Analysis

Trade Facilitation Indicators, Trading

Across Borders, Transparency Indicators

Standards and Export Competitiveness, aid effectiveness, least

developed countries

World Bank Trade Research

Trade Facilitation been key focus of World Bank Research Group since 2002

• Lowering trade costs and increasing transparency results in a significant increase in trade for even the poorest countries

• Improvements in infrastructure quality of Vietnam halfway to the level of Singapore, trade levels of the former would increase by 37.5 percent (Portugal-Perez, Wilson 2012)

• With limited resources in post-crisis context, targeted interventions are necessary to maximize effectiveness of aid measures

• 1% increase in aid to for trade facilitation results in an increase of $347 million in recipient countries’ exports (Helble, Mann, Wilson 2011);

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Trade Facilitation Indicators

Policy and Research Questions

What is the impact of Trade Facilitation

measures on trade costs, and thus trade?

• across countries, regions?

• compared to other barriers to trade (e.g. tariffs)?

How important are gains in trade from decline in administrative costs compared to investment in “hard” infrastructure? and across policies (investment, regulatory reform, simplification, etc.)?

What measures (investment, reform) to prioritize? and where?

Portugal-Perez and Wilson 2012

Construct 4 composite indicators from 20+ single

indicators using factor analysis

Raw indicators from different sources (WEF, WB WDI, IT) grouped along four dimensions:

1. Port efficiency = quality of maritime and air

ports infrastructure.

2. Customs environment = customs costs and administrative transparency of customs

3. Regulatory environment = the economy’s approach to regulations.

4. IT sector infrastructure

Estimating the Indicators

Physical Infrastructure

• Quality of Ports • Quality of Infrastructure • Quality of Roads • Quality of Railroads

Information and Communications Technology (ICT)

• Availability of latest ICT Technology • Level of Technology Absorption •Extent of Business Internet Use •Government Prioritization

• Number of documents to export •Number of days to export • Number of documents to import • Number of days to import

Business Environment

• Government Transparency • Public Trust for Government • Irregular payments in exports and imports •Measures to combat corruption

Border and Transport Efficiency

Hard Indicators Soft Indicators

Business Environment Improvement in Asia

0%

2%

4%

6%

8%

10%

12%

14%

16%

Malaysia Thailand China Indonesia Philippines Vietnam Mongolia

17 Portugal-Perez, A. & Wilson, S.J. “Export Performance and Trade Facilitation: Hard and Soft Infrastructure. World Development (2012).

Tariff cut equivalent rise in trade (improving half way to region average)

Border & Transport Efficiency Improvement

in APEC Economies

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Tariff cut equivalent and export growth equivalent (improving to top performing APEC Economy)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Sin

gapore

Austr

alia

Hong K

ong S

AR

Japan

Kore

a,

Rep.

Mala

ysia

Thailand

Chin

a

Indonesia

Vie

tnam

Philip

pin

es

Ad valorem Equivalent Tariff Export Growth

Trading Across Borders (Doing

Business) Three components:

• Number of documents for export/import

• Costs of export/import procedures (only official costs)

• Time to export/import

Source: Doing Business 2012, International Finance Corporation

Trading Across Borders

Source: Doing Business 2012, International Finance Corporation

Strength: •comparability

•standard container (dry-cargo, 20 foot, full-loaded) • standard product (non hazardous, requiring neither refrigeration nor special standard (phytosanitary or safety) •Time series data

WB Transparency Index

APEC 2007 Identifies links between transparency and trade

facilitation Importer Transparency Index (ITI) and

Exporter Transparency Index (ETI) Using factor analysis, transparency indicators

drawing from a combination of:

Doing Business Report (World Bank) Global Competitiveness Report (WEF) Logistics Perception Index (World Bank) MAcMap (ITC-CEPII) Global E-Government Readiness Report (UN)

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Measuring Importer Transparency

Predictability

Importer

Transparency

Index (ITI)

Simplification

Trade Policy: Bound Lines

Tariff Dispersion

Hidden Barriers

E-Readiness

Customs Administration: Time Spread Imports

Std. Dev. Irreg. Pay.

Favoritism

Customs Admin.: Clearance Time Imports

No. Agencies Imports

No. Documents Imports

Irreg. Payments

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Transparency and Intra-APEC Trade

Report for APEC Trade Ministers

To assess the impact of transparency on trade, we use a standard gravity model

• Bilateral tariff rates, including regional agreements and preferences

• Ad valorem equivalents of non-tariff measures

• Take account of reverse causality

Results suggest that: • Improvements to transparency, tariffs, and

NTMs all have the potential to boost trade

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Scenario I Results: +$148bn (7.5%)

0

20

40

60

80

100

120

AUS CAN CHL CHN HKG IDN JPN KOR MEX MYS NZL PER PHL RUS SGP THA USA VNM

Perc

en

t o

f B

aseli

ne

Imports Exports

Scenario I: Improve importer transparency within the APEC region such that no economy is below the current regional average (0.54).

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Summary

Data and indicators crucial to providing empirical analysis needed to assess supply chain connectivity issues

• Key Examples: Portugal-Perez & Wilson 2012,

Trading Across Borders, and Transparency Index

Critical need – project level data, evaluaiton.

Looking forward: cooperation on data an

indicators – project level effectiveness

Thank You

John S. Wilson Lead Economist

Development Economics Research Group The World Bank

Econ.worldbank.org

http://econ.worldbank.org/projects/trade_costs