Assessing Intraregional Trade Facilitation Performance:

ESCAP's Trade Cost Database and Business Process Analysis Initiatives

Yann Duval, Trade Facilitation SectionTrade and Investment Division,United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)

WTO/ESCAP Seventh WTO/ESCAP Seventh ARTNeTARTNeT Capacity Building WorkshopCapacity Building Workshopfor Trade Research, for Trade Research, 1212--16 September 2011, Yogyakarta, Indonesia16 September 2011, Yogyakarta, Indonesia

Overview

Background

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/south-south 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 à “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 componentNote: 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

0.1

0.2

0.3

0.4

0.5

0.6

India China Japan Korea,

Rep.

Indonesia Malaysia Philippines Germany France United

Kingdom

United

States

EU5 NAFTA

Non

-Tar

iff

Pol

icy-

Rel

ated

Tra

de

Co

sts

1996-1999 2000-2003 2004-2007

China’s Bilateral Comprehensive Trade Cost Index (relative to Japan’s trade cost)

94.2

107.6

94.2

103.9

114.6

107.0

99.8

81.6

102.5

88.3

95.2 95.2100.1

92.2

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

India Indonesia Korea Malaysia Philippines Thailand USA

Jap

an

= 1

00

2000-2002 2006-2008

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 SAARCEast and

North-East Asia

North and Central

AsiaAUS/NZ EU5 NAFTA

ASEAN61%

(-2%)

SAARC151%(-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/NZ103%(-4%)

185%(-1%)

174%(4%)

359%(-3%)

74%(3%)

EU5127%(1%)

155%(-5%)

153%(-4%)

184%(-5%)

148%(0%)

72%(-2%)

NAFTA122%(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 SAARCEast and

North-East Asia

North and Central

AsiaAUS/NZ EU5 NAFTA

ASEAN61%

(-2%)

SAARC151%(-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/NZ103%(-4%)

185%(-1%)

174%(4%)

359%(-3%)

74%(3%)

EU5127%(1%)

155%(-5%)

153%(-4%)

184%(-5%)

148%(0%)

72%(-2%)

NAFTA122%(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 SAARCEast and

North-East Asia

North and Central

AsiaAUS/NZ EU5 NAFTA

ASEAN61%

(-2%)

SAARC151%(-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/NZ103%(-4%)

185%(-1%)

174%(4%)

359%(-3%)

74%(3%)

EU5127%(1%)

155%(-5%)

153%(-4%)

184%(-5%)

148%(0%)

72%(-2%)

NAFTA122%(1%)

179%(-10%)

138%(-12%)

282%(-6%)

149%(0%)

124%(-4%)

62%(-3%)

Country Ranking - Comprehensive Trade Costs2006-08 rank and improvement since 2000-02

Reporter 06-08Improve (-)/ Worsen (+)

Reporter 06-08Improve (-)/ 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

Reporter 2006-08Improve (-)/ Worsen (+)

Reporter 2006-08Improve (-)/ 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

Country Ranking - Comprehensive Trade Costs 2006-08 rank and improvement since 2000-02

Which countries have the lowest non-tariff policy related trade costs?

Reporter 2006-08Improve (-)/ Worsen (+)

Reporter 2006-08Improve (-)/ 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

50+ %

25%

10%

10%

1%

What are bilateral comprehensive costs of trade in goods made of?*

10-30%

60-90%

Natural trade costs(geographic and cultural distance between countries)

0-10%Tariff costs

Non-Tariff Policy-related trade costs

Business environment

Availability/use of ICT services

Liner Shipping Connectivity (port and maritime services efficiency)

Direct cost of trade procedures

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

à Much work remains to be done for regional integration of greater Asia

à 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

Thank You

19

More information on the:

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

Annex

Methodology

trade costs equation as

11)1(2

1

2

1

−

=−

≡

−σ

τjiij

jjii

jjii

jiij

ijxx

xx

tt

tt

where τij 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 jxij 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 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. Intranationaltrade 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::

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)

Methodology (cont’d)

Country set for each region are defined as follows:

MERCOSUR EU5 NAFTA AUS-NZ

Asia

ASEANEast and

North-EastAsia

North andCentral Asia

SAARC

ArgentinaBrazil

FranceGermanyItalySpainUK

CanadaMexicoUSA

AustraliaNew Zealand

IndonesiaMalaysiaPhilippinesThailand

ChinaJapanKoreaMacaoMongolia

ArmeniaAzerbaijanGeorgiaKazakhstanKyrgyz Rep.Russian Fed.

BangladeshIndiaPakistanSri Lanka

Comprehensive Trade Costs Improvements between Selected subregions and India, China and Japan

(percentage change btw. 2003 and 2007)

Belgium

Germany

ChinaMalaysia

United States

Netherlands

France

United Kingdom

ThailandKorea, Rep.

Italy

Japan

Swi tzerland

Spain

Sweden

Czech Republ ic

India

Vietnam

Austr ia

Canada

Finland

Denmark

Tur key

Ireland

Australia

Poland

Russian Federation

Hungary

IndonesiaSouth Africa

Israel

Slovak Republic

NorwayB ulgaria

Brazil

Portugal

Slovenia

Greece

Chile

New Zealand

Estonia

ArgentinaMexico

Pakistan

L ithuania

Iran, Islamic Rep.

Croatia

Phi lippines

LatviaSri Lanka

Cyprus

M oldovaLuxembourg

Oman

Colombia

Dominican Republ ic

AzerbaijanArmenia

Kyr gyz Republic

Namibia

Nicaragua

Mongolia

YemenMozambique

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

Rank o

f P

olic

y C

om

po

nent

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75Rank of Average Trade Cost

Rank Fitted values

Belgium

Germany

ChinaMalaysiaUnited States

Netherlands

France

United Kingdom

Thai landKorea, Rep.

Italy

Japan

Sweden

0

5

10

15

0 5 10 15

Non-t

ariff

polic

y-re

late

d tra

de c

ost

ra

nk

Comprehensive trade cost rank

Average Trade Cost VS LPI: Rank

Reporter NameAverage

Trade CostPolicy

Component LPI Reporter NameAverage Trade

CostPolicy

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 NameAverage

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

ASEAN-ASEAN

ASEAN-E/NE

ASEAN-N/C

ASEAN-SAARC

E/NE-ASEAN

E/NE-E/NE

E/NE-N/C

E/NE-SAARC

N/C-ASEAN

N/C-E/NE

N/C-N/C

N/C-SAARC

SAARC-ASEAN

SAARC-E/NE

SAARC-N/C

SAARC-SAARC

ASEAN-ASEAN

ASEAN-E/NE

ASEAN-N/C

ASEAN-SAARCE/NE-ASEAN

E/NE-E/NE

E/NE-N/C

E/NE-SAARC

N/C-ASEAN

N/C-E/NE

N/C-N/C

N/C-SAARC

SAARC-ASEAN

SAARC-E/NE

SAARC-N/C

SAARC-SAARC

0

1

2

3

4

No

n-T

arif

f

0 .05 .1 .15 .2 .25Tariff

2007/2008 2003/2004