WTO/ESCAP Seventh ARTNeT Capacity Building Workshop for Trade Research, 12-16 16 September 2011, Yogyakarta, Indonesia Assessing Intraregional Trade Facilitation Performance: ESCAP's Trade Cost Database and Business Process Analysis Initiatives Yann Duval, Trade Facilitation Section Trade and Investment Division, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)
Background Overview ESCAP s Regional Trade Cost Database Intra and extra sub-regional trade costs of Asia Key findings and implications from preliminary data analysis Way forward
Background Much progress has been made in developing trade facilitation/costs indicators However, there are limitations, including: (1) partial coverage of international trade costs (e.g., only international shipping costs) (2) little or no information on bilateral/regional/southsouth trade costs (3) very large variations in trade efficiency across products and trade routes not captured ESCAP is therefore: Developing a database of bilateral and intraregional trade costs Building capacity in Trade Process Analysis
ESCAP s Intraregional Trade Cost Database Based on the comprehensive trade costs measure proposed by Jacks, Meissner and Novy (2009) Measure derived from the gravity equation, i.e., ratio based essentially on bilateral trade data and GDP data objective measure of costs Captures all additional costs involved in trading goods bilaterally relative to those involved in trading goods domestically. It includes International shipping and logistics costs Tariff and non-tariff costs, including indirect and direct costs associated with trade procedures and regulations Costs from differences in language, culture, currencies Includes bilateral trade cost of 80 countries between 1988 and 2008
ESCAP s Intraregional Trade Cost Database Includes bilateral comprehensive trade cost of 80 countries between 1988 and 2008 Expressed as tariff equivalents Expressed as a trade cost index (relative to Japan s trade cost) Comprehensive trade costs are broken down into A Tariff cost component A Natural trade cost component A Non-tariff policy-related trade cost component Note: This is done by estimating a model of comprehensive trade costs (with geographic and cultural distance, and tariff as explanatory variables), and then using the estimated coefficients on tariff and distance to derive the non-tariff policy component)
Non-tariff Policy-related Trade Costs - THAILAND Thailand 0.6 0.5 Non-Tariff Policy-Related Trade Costs 0.4 0.3 0.2 0.1 0 India China Japan Korea, Rep. Indonesia Malaysia Philippines Germany France United Kingdom United States EU5 NAFTA 1996-1999 2000-2003 2004-2007
China s Bilateral Comprehensive Trade Cost Index (relative to Japan s trade cost) 2000-2002 2006-2008 160.0 140.0 Japan = 100 120.0 100.0 80.0 94.2 81.6 107.6 102.5 94.2 88.3 103.9 114.6 95.2 95.2 107.0 100.1 99.8 92.2 60.0 40.0 20.0 0.0 India Indonesia Korea Malaysia Philippines Thailand USA
India s Bilateral Comprehensive Trade Cost Index (relative to Japan s trade cost)
Intra and Inter subregional Trade Costs in Asia: 2007 (in tariff equivalent; changes since 2003 in parenthesis) ASEAN SAARC East and North-East Asia North and Central Asia AUS/NZ EU5 NAFTA ASEAN 61% (-2%) SAARC 151% (-7%) 150% (-8%) East and North- East Asia 155% (-1%) 246% (1%) 128% (-3%) North and Central Asia 300% (8%) 301% (-14%) 223% (-7%) 162% (-3%) AUS/NZ 103% (-4%) 185% (-1%) 174% (4%) 359% (-3%) 74% (3%) EU5 127% (1%) 155% (-5%) 153% (-4%) 184% (-5%) 148% (0%) 72% (-2%) NAFTA 122% (1%) 179% (-10%) 138% (-12%) 282% (-6%) 149% (0%) 124% (-4%) 62% (-3%)
Intra subregional Trade Costs in Asia: 2007 (in tariff equivalent; changes since 2003 in parenthesis) ASEAN SAARC East and North-East Asia North and Central Asia AUS/NZ EU5 NAFTA ASEAN 61% (-2%) SAARC 151% (-7%) 150% (-8%) East and North- East Asia 155% (-1%) 246% (1%) 128% (-3%) North and Central Asia 300% (8%) 301% (-14%) 223% (-7%) 162% (-3%) AUS/NZ 103% (-4%) 185% (-1%) 174% (4%) 359% (-3%) 74% (3%) EU5 127% (1%) 155% (-5%) 153% (-4%) 184% (-5%) 148% (0%) 72% (-2%) NAFTA 122% (1%) 179% (-10%) 138% (-12%) 282% (-6%) 149% (0%) 124% (-4%) 62% (-3%)
Inter subregional Trade Costs in Asia: 2007 (in tariff equivalent; changes since 2003 in parenthesis) ASEAN SAARC East and North-East Asia North and Central Asia AUS/NZ EU5 NAFTA ASEAN 61% (-2%) SAARC 151% (-7%) 150% (-8%) East and North- East Asia 155% (-1%) 246% (1%) 128% (-3%) North and Central Asia 300% (8%) 301% (-14%) 223% (-7%) 162% (-3%) AUS/NZ 103% (-4%) 185% (-1%) 174% (4%) 359% (-3%) 74% (3%) EU5 127% (1%) 155% (-5%) 153% (-4%) 184% (-5%) 148% (0%) 72% (-2%) NAFTA 122% (1%) 179% (-10%) 138% (-12%) 282% (-6%) 149% (0%) 124% (-4%) 62% (-3%)
Country Ranking - Comprehensive Trade Costs 2006-08 rank and improvement since 2000-02 Reporter 06-08 Improve (-)/ Worsen (+) Reporter 06-08 Improve (-)/ Worsen (+) Belgium 1 0 Denmark 22-2 Germany 2 0 Turkey 23-5 China 3-7 Ireland 24 11 Malaysia 4 1 Australia 25 0 United States 5 1 Poland 26 3 Netherlands 6 1 Russian Federation 27 6 France 7 1 Hungary 28 8 United Kingdom 8 1 Indonesia 29 3 Thailand 9-3 South Africa 30-7 Korea, Rep. 10-1 Israel 31 4 Italy 11 3 Slovak Republic 32-13 Japan 12 3 Norway 33 3 Switzerland 13-1 Bulgaria 34-4 Spain 14-1 Brazil 35-1 Sweden 15-1 Portugal 36-7 Czech Republic 16-6 Slovenia 37-5 India 17-12 Romania 38 3 Vietnam 18-15 Greece 39-2 Austria 19 1 Chile 40-8 Canada 20 3 New Zealand 41 10 Finland 21 2 Estonia 42 2
Country Ranking - Comprehensive Trade Costs 2006-08 rank and improvement since 2000-02 Reporter 2006-08 Improve (-)/ Worsen (+) Reporter 2006-08 Improve (-)/ Worsen (+) Kazakhstan 43-1 Dominican Republic 64-1 Argentina 44-10 Macao 65 4 Mexico 45-6 Azerbaijan 66 4 Pakistan 46 n.a. Armenia 67-5 Lithuania 47 8 Kyrgyz Republic 68 4 Iran, Islamic Rep. 48 14 Namibia 69-1 Croatia 49-3 Nicaragua 70-1 Philippines 50 18 Mongolia 71-4 Latvia 51 1 Yemen 72 n.a. Malta 52 5 Mozambique 73-5 Sri Lanka 53 4 Bahamas, The 74-6 Iceland 54-1 Maldives 75-2 Cyprus 55-1 Brunei 76-3 Bangladesh 56-2 Fiji 77 3 Moldova 57 0 Vanuatu 78 n.a. Luxembourg 58 5 Afghanistan 79 n.a. Oman 59 0 Bhutan 80 n.a. Georgia 60-3 Samoa 81 0 Colombia 61 1 Tonga 82-1 Cambodia 62-4
Which countries have the lowest non-tariff policy related trade costs? Reporter 2006-08 Improve (-)/ Worsen (+) Reporter 2006-08 Improve (-)/ Worsen (+) Malaysia 1 0 Spain 19 4 China 2-4 Finland 20-4 United States 3 1 Brazil 21 2 Belgium 4 1 India 22-3 Korea, Rep. 5-2 South Africa 23 1 Japan 6 1 Indonesia 24 8 Thailand 7-1 Poland 25-11 Germany 8 4 Switzerland 26 3 Netherlands 9 0 New Zealand 27 9 Italy 10 0 Russian Federation 28 7 France 11 0 Turkey 29 n.a. Australia 12-2 Chile 30 4 Sweden 13-4 Austria 31-1 United Kingdom 14 2 Mexico 32 1 Czech Republic 15-13 Argentina 33 0 Hungary 16-19 Slovak Republic 34-10 Canada 17 4 Denmark 35 1 Vietnam 18-9 Ireland 36 16
What are bilateral comprehensive costs of trade in goods made of?* Tariff costs 0-10% 10% 10% Availability/use of ICT services Business environment Non-Tariff Policyrelated trade costs 60-90% 25% 1% Liner Shipping Connectivity (port and maritime services efficiency) Direct cost of trade procedures Natural trade costs (geographic and cultural distance between countries) 10-30% 50+ % Other factors, incl.: -Indirect cost of trade procedures -Currency / exchange rate -Non-tariff Measures (SPS, TBT) -? *simplified representation based on Duval (2011)
Key findings and Implications Trade cost of Asian subregions with other Asian subregions HIGHER than trade cost with non-asian subregions Intra-ASEAN comprehensive trade cost on par (or better) with those intra-nafta South Asia and Central Asia have very high intra and extra regional trade costs Many Asian countries top ranked in terms of comprehensive trade costs and even better ranked in terms of non-tariff policy-related trade costs (China, Malaysia, Thailand, Rep. of Korea) Much progress made by Asian countries; India and Vietnam have made the most progress in recent years
Key findings and Implications No clear link between regional trade agreement/free trade area and comprehensive trade costs Lowest intra subregional trade costs found btw. Korea-Japan-China Tariff cost is a very small part of comprehensive trade costs (typically below 10% and falling) Logistics performance is an important component of comprehensive trade costs 70-80% correlation with Logistics Performance Index Much work remains to be done for regional integration of greater Asia From a competitiveness perspective, need to take a comprehensive approach to international trade cost reduction
Way Forward on ESCAP s Trade Cost initiative Need to explain what affects non-tariff policy related trade cost calculated Logistics service sector performance (level of competition)? [70% correlation with the LPI] Exchange rate policies? Transport infrastructure? Red tape; complex procedures? Expansion of database to sectoral level Detailed studies on countries with lowest NT policy trade costs to identify the changes that made them outperform Macro-level trade cost indicators need to be complemented by micro-level performance indicators ESCAP and UNNExT started building capacity on undertaking systematic Trade Process Analysis
More information on the: Thank You ESCAP Trade Cost Database - duvaly@un.org United Nations Network of Experts for Paperless Trade (UNNEXT) www.unescap.org/unnext Asia-Pacific Research and Training Network on Trade (ARTNeT) www.artnetontrade.org 19
Annex
Methodology trade costs equation as 1 1 τ ij t t ij ii t t ji jj 2 1 = x x ii ij x x jj ji 2( σ 1) 1 where τij denotes geometric average trade costs between country i and country j tij denotes international trade costs from country i to country j tji denotes international trade costs from country j to country i tii denotes intranational trade costs of country i tjj denotes intranational trade costs of country j xij denotes international trade flows from country i to country j xji denotes international trade flows from country j to country i xii denotes intranational trade of country i xjj denotes intranational trade of country j σ denotes elasticity of substitution (which is set = 8)
Methodology (cont d) Trade costs are directly inferred from observable bilateral and intranational (domestic) trade data Indicator shows how much more expensive bilateral trade is relative to intranational trade. Intranational trade is ideally defined as gross output less intermediate consumption. Since gross output data is not available for most developing countries in Asia, intranational trade is calculated instead as gross domestic product (GDP) minus export Subregional trade costs are calculated as simple averages of bilateral trade costs of countries within each subregion
Data:: Methodology (cont d) Bilateral international trade flows from 1988-2008 are obtained from UN Commodity trade database (Comtrade) Bilateral import data is used as it is generally believed to be of better quality than export data. GDP and gross exports, used in calculation of bilateral intranational trade, are obtained from World Development Indicator (WDI) and UN Comtrade, respectively Bilateral tariff data used to calculate non-tariff trade costs at the subregional level are from the UNCTAD TRAINS database
Methodology (cont d) Country set for each region are defined as follows: Asia MERCOSUR EU5 NAFTA AUS-NZ ASEAN East and North-East Asia North and Central Asia SAARC Argentina Brazil France Germany Italy Spain UK Canada Mexico USA Australia New Zealand Indonesia Malaysia Philippines Thailand China Japan Korea Macao Mongolia Armenia Azerbaijan Georgia Kazakhstan Kyrgyz Rep. Russian Fed. Bangladesh India Pakistan Sri Lanka
Comprehensive Trade Costs Improvements between Selected subregions and India, China and Japan (percentage change btw. 2003 and 2007)
Non-tariff policy-related Rank of Policy Component trade cost rank 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 15 10 5 Ireland Denmark Norw ay B ulgaria Portugal Slovenia Israel Slovak Republic Austr ia Tur key 0Russian Federation Switzerland Poland Indonesia India South Africa Brazil Finland Spain Vietnam Canada Hungary Czech Republic United Kingdom Sweden Australia France Italy Netherlands Germany Thailand Japan Korea, Rep. Belgium United States China Malaysia Greece Kyr gyz Mongolia Republic Armenia Azerbaijan Namibia Yemen U nited Kingdom Mozambique Luxembourg M oldova Nicaragua Oman Dominican Republic Croatia France Colombia Iran, Islamic Rep. Pakistan Italy Latvia Netherlands Sri Lanka Cyprus 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 Rank of Average Trade Cost Comprehensive trade cost rank Rank Germany Philippines Thai land Estonia Japan Lithuania Korea, Rep. Belgium Argentina Mexico United States Chile China New Zealand Malaysia 0 5 10 15 Fitted values S
Average Trade Cost VS LPI: Rank Reporter Name Average Trade Cost Policy Component LPI Reporter Name Average Trade Cost Policy Component LPI Belgium 1 4 10 Austria 19 31 4 Germany 2 8 2 Canada 20 17 8 China 3 2 26 Finland 21 20 13 Malaysia 4 1 23 Denmark 22 35 11 United States 5 3 12 Turkey 23 29 30 Netherlands 6 9 1 Ireland 24 36 9 France 7 11 16 Australia 25 12 15 United Kingdom 8 14 7 Poland 26 25 35 Thailand 9 7 27 Russian Federation 27 28 59 Korea, Rep. 10 5 21 Hungary 28 16 31 Italy 11 10 18 Indonesia 29 24 37 Japan 12 6 5 South Africa 30 23 20 Switzerland 13 26 6 Israel 31 38 29 Spain 14 19 22 Slovak Republic 32 34 42 Sweden 15 13 3 Norway 33 44 14 Czech Republic 16 15 33 Bulgaria 34 43 45 India 17 22 34 Brazil 35 21 48 Vietnam 18 18 44 Portugal 36 41 24
Average Trade Cost VS LPI: Rank (cont d) Reporter Name Average Trade Cost Policy Component LPI Reporter Name Average Trade Cost Policy Component LPI Slovenia 37 39 32 Moldova 55 56 61 Romania 38 43 Luxembourg 56 57 19 Greece 39 49 25 Oman 57 54 40 Chile 40 30 28 Colombia 58 51 54 New Zealand 41 27 17 Cambodia 59 53 Estonia 42 40 39 Cameroon 60 55 Kazakhstan 43 69 Dominican Republic 61 53 58 Argentina 44 33 38 Azerbaijan 62 61 63 Mexico 45 32 46 Armenia 63 62 68 Pakistan 46 48 51 Kyrgyz Republic 64 64 60 Lithuania 47 37 47 Namibia 65 60 66 Iran, Islamic Rep. 48 50 52 Nicaragua 66 55 65 Croatia 49 52 49 Mongolia 67 63 70 Philippines 50 42 50 Yemen 68 59 64 Latvia 51 47 36 Mozambique 69 58 62 Sri Lanka 52 46 57 Afghanistan 70 71 Cyprus 53 45 41 Bhutan 71 67 Bangladesh 54 56
Tariff vs. Non-Tariff Subregional Trade Costs 4 N/C-SAARC 3 ASEAN-N/C N/C-SAARC N/C-ASEAN N/C-ASEAN SAARC-N/C SAARC-N/C ASEAN-N/C E/NE-SAARC E/NE-SAARC Non-Tariff 2 N/C-N/C E/NE-N/C E/NE-N/C N/C-E/NE N/C-E/NE SAARC-E/NE SAARC-E/NE E/NE-ASEAN ASEAN-E/NE ASEAN-SAARC E/NE-ASEAN N/C-N/C ASEAN-SAARC SAARC-SAARC E/NE-E/NE ASEAN-E/NE SAARC-ASEAN SAARC-SAARC SAARC-ASEAN 1 E/NE-E/NE ASEAN-ASEAN ASEAN-ASEAN 0 0.05.1.15.2.25 Tariff 2007/2008 2003/2004