Measuring Trade Facilitation Performance: Introduction & ESCAP Tools

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Measuring Trade Facilitation Performance:

Introduction & ESCAP Tools

Yann DuvalChief, Trade Facilitation Unit

Introduction

A new measure: ESCAP-World Bank International Trade Cost

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Table of Contents

Commonly used cross-country performance measures

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Business Process Analysis for Trade Facilitation

Concluding remarksV

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What is Trade Facilitation (TF)? - Definition

• “the simplification and harmonization of international trade procedures”

• “measures that aim to increase the cost effectiveness of international trade transactions”

What is Trade Facilitation? – Overview of TF



• Significant progress made in reducing time of import/export since 2005, but developed economies also improved during that period

• On average, it still takes 30 days to move goods from factory to deck-of-ship at the nearest seaport

South Asia: 30 daysSouth-East Asia: 20 days Developed economies: 10 days

• Improvements in TF could bring $250 billion in additional trade for Asia and the Pacific

Measuring performance is important

From ADB-ESCAP Reference Book on “Designing and Implementing Trade Facilitation in Asia and the Pacific”, available at: http://www.unescap.org/tid/projects/tfforum_adbescapbook.pdf

http://www.unescap.org/tid/projects/tfforum_adbescapbook.pdf

Existing TF performance measures – Doing Business

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• Doing Business ranks the business regulation and environment in 185 economies around the world

• Ranking is based on 10 topics: starting a business, dealing with construction permits, getting electricity, registering properties, getting credit, protecting investors paying taxes, trading across borders, enforcing contract, resolving insolvency

• source: http://www.doingbusiness.org

http://www.doingbusiness.org/

Existing TF performance measures – Doing Business

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Existing TF performance measures – Logistic Performance Index

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• Logistics Performance Index (LPI) indicates the level of logistic friendliness in 155 countries

• LPI ranking is based on 6 topics: customs, infrastructure, international shipments, logistics competence, tracking and tracing and timeliness

• source: http://lpisurvey.worldbank.org

http://lpisurvey.worldbank.org/

Existing TF performance measures – Logistic Performance Index

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Existing TF performance measures – LSCI

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• Liner shipping connectivity Index (LSCI) measures the level of seaport connectivity to the global networks in 159 countries

• LSCI ranking is based on 4 topics: numbers of ships, total container-carrying capacity of ships, maximum vessel size, number of services and number of companies that deploys container ships on services to and from a country’s port

• source: http://data.worldbank.org/indicator/IS.SHP.GCNW.XQ

http://data.worldbank.org/indicator/IS.SHP.GCNW.XQ

Existing TF performance measures – LSCI

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On measuring trade facilitation performance…

• Much progress has been made in developing trade facilitation/costs indicators

• However, there are limitations, including:– (reliability of some of the data)– Little or no information on

bilateral/regional/south-south trade costs– 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 [macro]– Building capacity in Business Process Analysis

of import and export processes [micro]

Introduction


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Table of Contents


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Concluding remarksV

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Retail and wholesale distributio

n costs(55%)

*Tax equivalent of the time value of goods in transit.** The combination of direct observation and inferred costs, which, according to author, is an extremely rough breakdownSource: Anderson and van Wincoop (2004)

Direct evidence on border costs shows that tariff barriers are now low in most countries, on average less than 5% for rich countries, on average between 10-20 % for developing countries.

Estimated Trade Costs in Industrialized Countries

Trade Costs

(170%)

Security barrier(3%)

Information costs barrier(6%)

Currency barrier(14%)

Border related trade

barriers**(44%)

Language barrier

(7%)

Policy barriers (Tariff and

NTBs)(8%)

Freight costs

Transit costs*(9%)

Transport Costs(21%)

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What is Trade Cost? – Intro/Initiation

• Based on the comprehensive trade costs measure proposed by Jacks, Meissner and Novy (2009)

Measure derived from the theory-consistent gravity equation, i.e., ratio based essentially on Bilateral Trade data and Gross Output 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…

ESCAP-WB Trade Cost Database : Definition


Our measure of ad valorem trade costs:

whereτij denotes geometric average trade costs between country i and country j

tij denotes international trade costs from country i to country jtji denotes international trade costs from country j to country itii denotes intranational trade costs of country itjj denotes intranational trade costs of country j

Xij denotes international trade flows from country i to country jXji denotes international trade flows from country j to country iXii denotes intranational trade of country iXjj denotes intranational trade of country jσ denotes intra-sectoral elasticity of substitution (which is set = 8)

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• Intuition: keeping all else constant, a rise in the ratio of international trade relative to domestic trade must be associated with a fall in international trade costs relative to domestic trade costs

• Ad valorem ? bilateral trade costs are expressed in % of the value of goods (like tariffs generally are)

• Important note: Change in the value of sigma can change the absolute value of trade costs better to look at trade cost relative to each other

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jiij

jjii

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jiijjiij XX

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Note that:• Our trade costs are always expressed in terms of international relative to intra-national trade costs• Our trade costs are the geometric average of trade costs in both directions (country i to j and country j to i)

This can makes the identification of policy effects challenging

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ESCAP-WB Trade Cost Database : Coverage

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178 countries with at least some coverage data available from 1995 to 2010/11

Overall trade cost in goods (excluding oil)Trade cost in agricultureTrade cost in manufacturing

How to Access Trade Cost Data

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http://www.unescap.org/tid/artnet/trade-costs.asp

How to Access Trade Cost Data

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http://data.worldbank.org/data-catalog/trade-costs-dataset

Trade costs in Developing Countries: Findings – Arvis et al, 2013

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1. All-inclusive international trade costs are at least one order of magnitude (10 times) larger than tariffs

• Our “all-inclusive” measures cover tariffs, NTMs of all types, trade facilitation, connectivity, and logistics, as well as geographical factors, and cultural/historical/institutional factors—everything that drives a wedge between domestic and international prices

Consistent with Anderson and Van Wincoop (2004), who provide a guesstimate of 5% ad valorem for average rich country tariffs, compared with 74% ad valorem for international trade costs


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2. Trade costs in developing countries are much higher than in developed countries, and they are falling more slowly

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3. Trade costs in agriculture are much higher than trade costs in manufacturing in all income groups, and they are basically static over time


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4. Differences in policy and geography/culture translate into different levels of trade costs in different regions


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Trade costs in Developing Countries: Findings – Asia-Pacific Perspective: TC and NTC

Trade Costs (TC) and TC excluding tariff (NTC) between selected economies and China (2007-2010)

0 100 200 300 400

MaldivesBhutanTonga

VanuatuAfghanistan

ArmeniaGeorgia

FijiAzerbaijan

NepalCambodiaSri Lanka

TurkeyBangladesh

PakistanKyrgyz Republic

MongoliaIndia

IndonesiaPhilippines

FranceUnited Kingdom

Russian FederationAustralia

CanadaKazakhstan

VietnamThailandGermany

United StatesJapan

MalaysiaKorea, Rep.

Tariff-equivalent trade costs (percent)

NTC

TC

Trade Costs (TC) and TC excluding tariff (NTC) between selected economies and the United States of America (2007-2010)

0 100 200 300 400

BhutanKyrgyz Republic

VanuatuMaldives

TongaNepal

AfghanistanAzerbaijan

ArmeniaMongolia

FijiGeorgia

KazakhstanSri Lanka

BangladeshCambodia

PakistanTurkey

Russian FederationIndonesia

IndiaPhilippines

VietnamAustraliaThailand

FranceKorea, Rep.

JapanMalaysia

ChinaUnited Kingdom

GermanyCanada

Tariff-equivalent trade costs (percent)

NTC

TC

NTCij = TCij /(1+tariffij*ji). where tariffij*ji is the geometric average of tariffij and tariffji

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Agricultural and Manufacturing trade costs* between

Selected Economies and the USA

Trade costs in Developing Countries: Findings – Asia-Pacific Perspective: TC and NTC

*excluding tariff

International Trade Costs (excluding tariffs) of ESCWA region

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NCTC (2007 - 2010) and differences with 2001-2004.Region ESCWA NCA SAARC(4) EAST ASIA (3) EU (3) ASEAN (4) USA

143.31% 315.82% 155.50% 158.68% 144.25% 193.28% 147.84%(6.82%) (-3.29%) (-7.18%) (-5.77%) (-1.17%) (5.68%) (-5.52%)315.82% 141.27% 261.12% 220.76% 165.83% 381.31% 191.13%(-3.29%) (0.47%) (-13.15%) (-12.09%) (-4.86%) (7.94%) (3.46%)155.50% 261.12% 104.96% 124.88% 115.22% 125.79% 107.84%(-7.18%) (-13.15%) (-0.65%) (1.85%) (5.96%) (0.74%) (8.26%)158.68% 220.76% 124.88% 51.83% 85.75% 77.58% 63.03%(-5.77%) (-12.09%) (1.85%) (-8.46%) (-5.59%) (7.71%) (-1.36%)144.25% 165.83% 115.22% 85.75% 45.93% 110.22% 67.19%(-1.17%) (-4.86%) (5.96%) (-5.59%) (-0.38%) (6.58%) (1.07%)193.28% 381.31% 125.79% 77.58% 110.22% 75.40% 84.35%(5.68%) (7.94%) (0.74%) (7.71%) (6.58%) (3.08%) (12.36%)147.84% 191.13% 107.84% 63.03% 67.19% 84.35%(-5.52%) (3.46%) (8.26%) (-1.36%) (1.07%) (12.36%)

EAST ASIA (3)

EU (3)

ASEAN (4)

USA

ESCWA

NCA

SAARC(4)

ESCWA: Egypt, Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Sudan, Syria, Yemen, UAE, Tunisia, MoroccoASEAN (4): Indonesia, Malaysia, Philippines, Thailand.USAEA (3): China, Japan, Korea.NCA: Armenia, Azerbayan, Georgia, Kazahstan, Kyrghistan, Russian Fed.EU (3): United Kingdom, France, Germany.SAARC (4): Bangladesh, India, Pakistan, Sri Lanka.

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Explaining trade costs –

• From a policy perspective, it is important to break trade costs down into their component parts

Which sources of trade costs are the most important in terms of determining the overall pattern observed across countries?

What sorts of policies would be most effective in lowering trade costs and reducing the relative isolation of many low income countries?

• Econometric estimation becomes necessary at this point: we use a model with trade cost variables to explain the observed pattern of trade costs across countries

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Contribution of natural barriers, behind-the border facilitation and trade-related practice to trade costs

0-10%*

60-90%*

10-30%*

Tariff Trade Costs

Policy-RelatedNon-Tariff Trade Costs

Natural Trade Costs(Geographical and Cultural

Factors)

Direct Behind- & At-the border Trade Costs

1%

6-7%

6-7%

16-18%

52-57%

Availability/use of ICT Services

Business (Regulatory) Environment

Maritime Connectivity/Services

Other Trade Costs•Indirect cost of trade procedure•Currency fluctuation•Other non-tariff barriers

* Illustrative based on casual observation of the data only. Natural trade costs for landlocked countries may be outside the range shown for natural trade costs.

• Improving access to efficient maritime services (liner shipping connectivity) as well as to information and communication technology facilities are essential to making progress.

• Given limited resources available, focusing on improving the overall business environment may be often more effective in facilitating trade than implementing soft measures solely targeted at speeding up movement of goods between factory and the port.

Explaining trade costs – Asia-Pacific Perspective

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Implications from the ESCAP-WB trade cost database• A lot of room for improvement in trade facilitation

• Important to take a holistic approach to facilitating trade- Many components to trade costs

- Availability and quality of logistics infrastructure and services a key component

- Goal is to make the best possible use of existing hard infrastructure

- Use of modern ICT also one of the keys Paperless trade

• Sectoral focus of trade facilitation initiatives should be considered (e.g., agriculture)

• Micro-level studies need to be conducted - for specific routes, border crossings, and/or key products

- to form the basis of national/sub-regional TF action plans

Introduction


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Table of Contents


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Concluding remarksV

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ESCAP’s Initiative on Business Process Analysis (BPA) for Trade Facilitation

• Part of ESCAP’s support to paperless trade – United Nations Network of Experts for Paperless

Trade in Asia and the Pacific (UNNExT)• www.unescap.org/unnext/

• UNNExT Business Process Analysis Guide for the Simplification of Trade Procedures

BPA? Analysis, including mapping,timing and costing of a process(e.g., moving goods from factory to deck of ship)

Why? Necessary first step to improving a process

http://www.unescap.org/unnext/

Output of a UNNExT Business Process Analysis (1)

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Use Case Diagram

Activ

ity D

iag

ram

s

Define scope of analysis,

stakeholders involved,Activities to be studied

Output of a UNNExT Business Process Analysis (2)

The time-procedure chart*

*Frozen shrimp exports; Data collected by Institute for IT Innovation, Kasetsart University (2007)

ARTNeT* Regional BPA Study of Import and Export Processes

*Asia-Pacific Research and Training Network on Trade

Number of parties: 11 on export side; 12 on import sideNumber of documents: 17 on export side; 44 on import side

Trade in Electronics from CHINA to THAILAND

Some findings from the BPA studies

• Document preparation takes most time, followed by transport/ handling issues

• “Basic” trade facilitation measures not always in place• Procedures between private parties are a very big part of the

overall trade process• Different countries require different documents and information

for a same export product – Harmonization of procedures and documentary requirements crucial

• Importance of port logistics confirmed• …• Large variations in time and cost across products (or product

usage), transport routes, destination, firm size,…

Note: The ARTNeT study was exploratory in nature. Data collected needs to be carefully validated (e.g., through multi-stakeholder meetings).

Policy Recommendations from BPA (1)

• Full and inclusive representation of the private sector in trade facilitation initiatives is essential.

• Implementation of basic trade facilitation measures should be consistently enforced and re-enforced nation-wide.

• Paperless trade, including development of national and regional single windows, needs to be prioritized for trade facilitation.

• Physical inspections should be minimized whenever possible, in particular through adoption of risk management techniques by all organizations involved in the trade process.

Policy Recommendations from BPA (2)

• Healthy competition among transport, logistics and other trade-related service providers should be encouraged

• Reviewing payment systems and their efficiency may reveal new opportunities for improving trade facilitation performance.

• Industry-specific trade facilitation programmes should be considered, in particular for agricultural products.

• Harmonization of documentary requirements across countries should be actively pursued. – Bilateral and regional free trade agreements should

systematically address trade facilitation issues.

Concluding remark(s)

National / regional trade facilitation performance monitoring mechanisms needed to identify the most important barriers to trade efficiency

could be based on regular business process analysis of trade procedures (supplemented by time release studies)

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Measuring Trade Facilitation Performance: Introduction & ESCAP Tools