The Influence of Trade Costs and Trade Facilitation on ... · The Influence of Trade Costs and Trade Facilitation on Connecting to Global and Regional Value Chains Workshop on the

The Influence of Trade Costs and Trade Facilitation on Connecting to Global and Regional Value Chains

Workshop on the 2015 Aid-for-Trade Monitoring and Evaluation Exercise and Aid-for-Trade At a Glance Publication

WTO, Geneva, 28 May 2015

Background and Outline

The internationalisation of production offer developing countries new opportunities to integrate into the global economy

Stronger focus on addressing policy and non-policy related trade costs

Multilateral and regional trade cooperation can help : deepen integration by covering many dimensions of GVCs.

Trade facilitation seems to be an important determinant of GVC participation.

There is room for improvement in this area; infrastructure and other trade facilitation aspects.

Aid for Trade projects have targeted regional constraints and improved regional economic co-operation

Trade projects have targeted regional al economic co-operationOECD Trade and Agriculture Directorate 2

Global and Regional Dimensions to GVC : How do countries engage in GVC

• Adding both ways (backward and forward) we observe increase in GVC participation and heterogeneity in level of participation

• Cross regional differences in the way they engage regionally vs extra-regionally

Source: OECD (2015) Calculations based on EORA database 3

Global and Regional Dimension to GVC: Determinants of Participation

• Understanding participation requires more than just looking at relative participation rate

• GVC participation ratio (backward and forward) are analysed against a number of factors : Policy and Non-Policy– Structural characteristics of countries are the main determinants of

participation– Investment openness matters for backward integration – Trade Policy explains lower integration of South Asia, Africa and LAC

compared to other regions.– Residual capturing other factors (infrastructure, regulations, and other

NTMs such as logistics and border procedures) are more important

OECD Trade and Agriculture Directorate 4

Global and Regional Dimension to GVC: Determinants of Participation

Source: OECD (2015) Estimations based on EORA database

5

Global and Regional Dimension to GVC: The role of Trade Costs

• Trade facilitation in its narrow or broad definition is important

Source: OECD (2015) Estimations based on OECD TiVA database

• With goods crossing borders multiple times, trade facilitation has become central to the smooth functioning of GVCs

OECD Trade and Agriculture Directorate6

Regional Perspective to Trade Costs: Average Trade costs (ESCAP-World Bank Trade Cost Database )

• Trade costs :0-10% are tariffs, 10-30% correspond to natural trade costs, 60-80% relates to policy non-tariff measures

• South East Asia face the lowest costs among developing regions

Source: OECD (2015) calculations based on ESCAP-World Bank Trade Cost Database

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0

50

100

150

200

250

300

CPV

NGA

CIV

GHA

SEN

LBR

MRT

MLI

CMR

BFA

BEN

TGO

GNQ

TCD

NER

GMB

CAF

ZWE

ZAF

ZMB

KEN

TZA

ETH

MUS

MWI

UGA

AGO

MOZ

SDN

RWA

BDI

IND

PAK

AFG

LKA

BTN

NPL

MDV

KAZ

UZB

MKD

GEO

MDA

TJK

KGZ

ALB

AZE

ARM

CHL

BRA

CRI

ARG

GTM

HND

PER

COL

ECU

SLV

URY

PAN

NIC

PRY

DOM

BOL

VEN

DZA

ISR

TUR

TUN

MAR

JOR

EGY

IRN

SYR

LBN

YEM

MYS

CHN

VNM

THA

PHL

IDN

PNG

LAO

KHM

Western and Central Africa East and Southern Africa South Asia Central Asia Latin America Middle East and North Africa East Asia

Average trade costs (trade weighted)

Regional Perspective to Trade Costs: Intra-regional Trade costs

• Central Asia has the lowest costs among developing countries (CAREC)

• Investment in infrastructure and trade facilitation in South East Asia has contributed to the low intra-regional trade costs (ASEAN)

• South Asia, Latin America and even more SSA display high intra-regional trade costs

Source: OECD (2015) calculations based on ESCAP-World Bank Trade Cost Database

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E27 ECA ESA LAC MEN NA SA SEA WCAEuropean Union E27 34.3Europe and Central Asia ECA 67.3 64.8Eastern and Southern Africa ESA 112.0 146.0 103.7Latin America LAC 109.5 158.4 186.2 93.6Middle East North Africa MEN 76.0 109.4 91.0 135.0 48.3North America NA 65.5 102.6 125.0 92.3 72.2 14.8South Asia SA 94.8 136.5 161.9 183.8 60.8 88.6 92.0South East Asia SEA 88.0 119.5 155.1 127.9 69.4 71.9 103.6 68.8Western and Central Africa WCA 106.7 168.2 93.7 123.7 112.4 105.4 99.6 162.0 104.3

Regional Perspective to Trade Costs: Trade Infrastructure and Trade Facilitation

• Trade facilitation comes first as source of trade cost in the AfT Survey

Source: OECD/WTO questionnaires Global Review Aid-For-Trade Monitoring Exercise 2015

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W ha t a re the mo st imp o rta nt so urce s o f tra d e co s ts fo r the e xp o rt ?

Go o d s Se rv ice s

83.3%51.4%79.2%80.6% 68.1%55.6% 77.8%59.7%4.2% 5.6%

44.4%22.2%44.4%44.4%19.4%43.1%

Bo rd e r p ro ce d ure s (tra d e fa c il i ta tio n)Tariffs, fees and other chargesNo n-T a riff Me a sure s (inc lud ing s ta nd a rd s)T ra nsp o rt infra s truc tureNe two rk infra struc ture (ICT , p o we r, te le co ms)Access to trade financeOtherNon-recognition of professional qualificationsRestrictions on commercial presenceRestrictions on movement of natural personsPoor regulatory environment for servicesTariffs on product inputs (on computers for ICT services..)Low levels of skills in service sectors

Answe r Op tio ns

Regional Perspective to Trade Costs: Trade Infrastructure (infrastructure quality in WCI)

Source: World Competitiveness indicators 201010

‐2

‐1.5

‐1

‐0.5

0

0.5

1

1.5

Angola

Lesotho

Burund

i

Tanzan

ia

Madagascar

Mala

wi

Zimbabw

e

Rwanda

Kenya

Botsw

ana

Ethio

pia

Mauritius

South A

frica

Namibia

Paraguay

Vene

zuela

Bolivia

Costa

Rica

Brazil

Colom

bia

Argentina

Guyana

Peru

Ecuado

r

Dom. R

epub

lic

Hond

uras

Uruguay

Guatem

ala

El Salva

dor

Panama

Chile

Eastern and Southern Africa Latin America & Caribbean

Stan

dardize

d scores

‐2

‐1.5

‐1

‐0.5

0

0.5

1

1.5

Libya Iran

Algeria

Lebano

n

Morocco

Egypt

Turkey

Jordan

Tunis

ia

Afghanistan

Nepal

Banglas

desh

Pakis

tan

India

Sri Lanka

Mon

golia

Philip

pines

Viet Nam

Indo

nesia

Cambo

dia

China

Thailand

Mala

ysia

Chad

Mauritania

Nigeria

Burkina

Faso

Cameroo

n

Benin

Ghan

a

Sene

gal

Côte d'Ivo

ire

Middle East & North Africa South Asia Southeast and East Asia West and Central Africa

Stan

dardize

d scores

Regional Perspective to Trade Costs: Infrastructure : when projects make a difference

• The leading position of East Asia is clearly showcased in the Greater Mekong Sub-region (GMS) project

• In Africa :the Priority Road Transport Programme (PRTP) not completed and the railway project witnessed very slow progress

• But decreasing trade costs is not only about infrastructures it is also facilitating trade procedures


Regional Perspective to Trade Costs: Trade Facilitation (OECD TFI Index)

OECD (2015) Note: The TFIs values range between 0 and 2, where 2 corresponds to the best performance. The values indicate the average TFI performance by country group.

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Regional Perspective to Trade Costs: Potential Trade Costs reduction


Source: OECD Trade Facilitation Index: reduction of trade costs in percentage for an increase in TF index

Regional Perspective to Trade Costs: Trade Facilitation & GVC: insight from OECD (2015)

• key sets of measures for developing the supply side (forward-type linkages) of the value chain activity

– proportionality and transparency of import and export fees and charges– automation of border processes – streamlining of border procedures – Consultations and opportunities to comment for Trade community*– Availability of trade-related information*

• key sets of measures to encourage the most linkages on the demand side (backward-type linkages) of the value chain activity

– proportionality and transparency of import and export fees and charges– automation of border processes – streamlining of border procedures – Advance rulings*


Regional Initiative Trade Facilitation: Regional Agenda: Aid flows

Source: OECD based on OECD-CRS data 15

• heterogeneity in the share of aid spending directed at trade facilitation in the narrow sense (border procedures) as compared to spending directed at infrastructure

heterogeneity can be observed across regions in the share of aid for trade spending directed at trade facilitation in the narrow sense (border procedures) as compared to spending directed at infrastructure

9.9% 10.7%

6.2% 7.3%

12.3%

1.2%

2.1%

‐

5,000

10,000

15,000

20,000

25,000

Middle East Latin America North Africa Central Asia Sub‐SaharanAfrica

South Asia East Asia

Total TF over 200

4‐2013

(millions $US)

Trade FacilitationCommunication infrastructureTransport infrastructure

ShareofnarrowtradefacilitationinTotal

Regional Initiative Trade Facilitation: Actions

Source: OECD/WTO questionnaires Global Review Aid-For-Trade Monitoring Exercise 2015

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In which a re a s ha ve a c tio ns b e e n und e rta ke n o r a re o n-g o ing ? Na tio na l Ac tio ns

Re g io na l Actio ns

94.3% 93.4%54.3% 59.0%71.4% 72.1%71.4% 47.5%72.9% 63.9%47.1% 19.7%0.0% 1.6%

72.9% 65.6%65.7% 52.5%62.9% 57.4%62.9% 59.0%37.1% 19.7%2.9% 4.9%

Tariffs on product inputs (e.g. on Unsure

Transport infrastructure (e.g. for tourism)Reforms of national regulatory Negotiations with trading partners on

UnsureFOR SERVICES:Network infrastructure (ICT, power,

Network infrastructure (ICT, power, Transport infrastructureAccess to trade finance

Border procedures (trade facilitation)Tariffs, fees and other chargesNon-Tariff Measures (including

Answe r Op tio ns

FOR MERCHANDISE GOODS:

Regional Initiative Trade Facilitation: Regional Agenda: projects

• Interest for regional projects combining Infrastructure and trade facilitation, such as CAREC and GSM that gave good results

• In Africa project focusing on TF only are most prevalent, except the Abidjan-Lagos TTFP, but it is progressing too slowly

• Latin America is an important recipient of aid for trade facilitation : Mesoamerican initiative in Central America

• South Asia hosted few assistance projects focussing on narrow trade facilitation.


Regional Initiative on Trade Facilitation: Regional Co-operation: who are the players

• Asia– ASEAN/AEC: blue print initiative– ADB: Now is aligning closely with the implementation of the AEC and regional

Initiative

• Latin America– PTA: Three quarters of LACs preferential trade agreements (PTA) include trade

facilitation commitments. – The IDB has strengthened this institutional priority by establishing a financial

goal for 2015 of investing 15 percent of its loans in integration projects.

• Africa– Many African RECs have implemented trade-facilitation initiatives: COMESA-

ECOWAS- EAC- SADC– In March 2012 AfDb has established the Trade Fund (AfTra) that will notably

focus on improving trade facilitation in RMCs and RECs


Conclusions

• Several areas of economic and institutional development which matter for GVCs fall within the purview of the Aid for Trade Initiative.

• Trade facilitation and quality of infrastructure are estimated to have strong impacts on GVC integration

• There is room for improvement in this area; Africa, South Asia and Latin America are significantly lagging behind in terms of trade costs

• Regional co-operation can be an effective strategy to promote integration into value chains and enhance regional integration

• The responses to the 2015 WTO-OECD surveys confirm that actions have been taken in the key areas.

• One major challenge for the future is the need for better co-ordination at the regional level of infrastructure projects with narrow trade facilitation projects


For more information

• Visit our website: www.oecd.org/trade

• Contact us: [email protected]

• Follow us on Twitter: @OECDtrade

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Trade and Agriculture Directorate

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The Influence of Trade Costs and Trade Facilitation on ... · The Influence of Trade Costs and Trade Facilitation on Connecting to Global and Regional Value Chains Workshop on the