Trade facilitation December 2015 Bangkok, Thailand Cosimo Beverelli Rainer Lanz (WTO) (WTO) Content • What is trade facilitation? • Measuring trade facilitation • Estimating the impact of trade facilitation on trade 2 What is trade facilitation? • Trade facilitation can be differentiated along two dimensions • Broad or narrow • Narrow: administrative procedures at the border • Broad: includes also behind-the-border measures, e.g. domestic regulation, technical barriers to trade, quality of infrastructure • Soft or hard infrastructure • Soft: transparency, customs management and other intangible institutional aspects • Hard: includes physical transport and ICT infrastructure 3 Trade Facilitation at the WTO – the Trade Facilitation Agreement • WTO Members concluded negotiations on a new Trade Facilitation Agreement at the Bali Ministerial - (WT/L/911). The Agreement contains two sections • Section I: Provisions • Section II: Substantive Special and Differential Treatment (S&D) measures • Category A, B and C provisions – countries can self-determine timing of implementation • For Category C commitments Conditional on the acquisition of implementation capacity through technical assistance • The Agreement will enter into force once it has been ratified by 2/3 of the WTO Membership. • By the time of the Nairobi Ministerial Conference, 63 Members have ratified the Agreement and 108 are needed for implementation • WTO Trade Agreement Facility launched in July 2014 • Needs assessment, provision of information, project preparation grants 4 Measuring Trade Facilitation (some indicators) • World Bank Doing Business: Trading across borders • Cost to export (import), Number of days to export (import), Number of documents required to export (import) • Assumptions: 20-feet container with value of US$20,000 exported by local business with 201 employees located in the country’s most populous city. • New methodology! • World Bank Logistics Performance Index (LPI) – 1 (worst) to 5 (best) • Based on survey of logistics operators (2007, 2010, 2012, 2014) • Six sub-indicators: i) Customs; ii) Infrastructure; iii) Ease of arranging shipments; iv) Quality of logistics services; v) Tracking and tracing, vi) Timeliness • OECD Trade Facilitation Indicators (TFIs) – 0 (worst) to 2 (best) • Based on public and private sector questionnaires • 97 variables grouped into 16 sub-indicators - can be linked to WTO TFA provisions 5 Estimating the impact of trade facilitation on trade Two main approaches • General equilibrium analysis • E.g. Zaki (2014) and WTR (2015) • Gravity modelling • E.g. Moise and Sorescu (2013) and WTR (2015) using the OECD TFIs Two margins (as trade facilitation can affect both fixed and variable cost) • Intensive margin • Extensive margin (export diversification) Different types of data • Standard trade data • Firm level or transaction based data 6 Hoekman and Nicita (2011) • Assess the impact of trade policy and trade costs in a cross-sectional gravity framework (106 countries; 2006) • Calculate multilateral resistance terms using distance and border following Baier and Bergstrand (2009) • Controls: GDP, Population, MR, landlocked, distance, border, language, bilateral trade agreement, trade policy var.s, trade costs 7 Hoekman and Nicita (2011) • Trade Costs (averages by country group) • How much would trade increase for low income countries if their trade policy and trade costs indicators improved to the average levels of middle-income countries? 8 Export diversification – extensive margin of trade • Impact of trade facilitation on the number of eight-digit product lines exporter by developing countries to the EU • Poisson regression to estimate count model • Dennis and Shepherd (2011) estimate the impact of cost to export on the number of products exported to the EU (not bilateral; but by 2-digit sectors) • If the costs to export are reduced by 1%, the number of products exported to the EU increase by 0.3%. • Persson (2013) estimates the impact of time to export on the number of products exported to EU countries (bilateral) • If the time to export is reduced by 1%, the number of exported differentiated and homogenous products to a trading partner in the EU increases by 0.6% and 0.3%, respectively. • Assess the effect of the WTO Trade Facilitation Agreement on two extensive margins related to export diversification • Beverelli at al. (2015) 9 Dennis and Shepherd (2011) 10 Persson (2013) 11 Beverelli et al. (2015) • Assess the effect of the WTO Trade Facilitation Agreement on two extensive margins related to export diversification • Number of products by export destination: npdij • npdij varies between 43 for Sub-Saharan Africa and 501 for East Asia and Pacific • Number of export destinations served by product: ndpik • ndpik varies between 1 for Sub-Saharan Africa and 16 for East Asia and Pacific • OECD Trade Facilitation Indicators (use simple average across 12 TFIs) • Regressions: OLS, Poisson ML and Negative Binomial (NB) ML • Use only “new products” or “new destinations” to address reverse causality concerns • Estimate increases in extensive margins if countries improve TFI scores to global median (or regional median) • Implementation of the WTO TFA could increase npdij by 15.7% and ndpik by 34.9% for SSA countries 12 Beverelli at al. (2015) 13 Trade facilitation and trade using firm level data • Studies using the WB Enterprise Surveys • Shepherd (2013) • Assess the impact of time to export in the share of imported inputs, direct exports and indirect exports • Fractional logit model • WB ES (2006-2010): 5,000 firms in 85 countries and 11 sectors • Firm level control variables and country-sector-year FE • Hoekman and Shepherd (2015) • Assess impact of trade facilitation, i.e. time to clear customs, on firm level exports and imports • WB Enterprise Surveys (2006-2011) • Firm level control variables and country-sector-year fixed effects • Find stronger evidence for the impact of trade facilitation on exports as compared to imports • A 10% reduction in time to export is associated with an 1.1% export gain • Other studies use country-specific (firm level) datasets, e.g. Volpe Martincus et al. (2015) estimate the effect of customs-related delays on firm’s export based on Uruguay customs transaction data 14 Shepherd (2013) • How does time impact the share of imported inputs, direct exports and indirect exports? 15 Hoekman and Shepherd (2015) • How does the impact of trade facilitation vary by firm size and sector? 16 .