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Assessing Intraregional Trade Facilitation Performance: ESCAP's Trade Cost Database
Yann Duval, Trade Facilitation Section Trade and Investment Division, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)
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…
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)
Bilateral comprehensive trade cost with Japan (ad valorem tariff equivalent), %
Source: ESCAP Trade Cost Database
Intra & Inter subregional Trade Costs in Asia (excluding tariff; 2007 in tariff equivalent; changes since 2003 in parenthesis)
ASEAN4
East and NorthEast Asia
North and Central Asia
SAARC-4
Aus-NZ
EU-5
ASEAN-4
49% (-1%)
East and NorthEast Asia
132% (na)
105% (na)
North and Central Asia
259% (10%)
193% (-5%)
148% (12%)
SAARC-4
117% (-4%)
201% (na)
258% (-6%)
113% (-5%)
Aus-NZ
85% (-2%)
143% (na)
313% (-4%)
145% (0%)
61% (3%)
EU-5
105% (2%)
127% (na)
161% (-3%)
124% (-2%)
122% (0%)
59% (-3%)
NAFTA
101% (3%)
109% (na)
244% (10%)
137% (-7%)
122%(6 %)
104% (1%)
NAFTA
50% (15%)
Intra & Inter subregional Trade Costs in Asia (excluding tariff; 2007 in tariff equivalent; changes since 2003 in parenthesis)
ASEAN4
East and NorthEast Asia
North and Central Asia
SAARC-4
Aus-NZ
EU-5
ASEAN-4
49% (-1%)
East and NorthEast Asia
132% (na)
105% (na)
North and Central Asia
259% (10%)
193% (-5%)
148% (12%)
SAARC-4
117% (-4%)
201% (na)
258% (-6%)
113% (-5%)
Aus-NZ
85% (-2%)
143% (na)
313% (-4%)
145% (0%)
61% (3%)
EU-5
105% (2%)
127% (na)
161% (-3%)
124% (-2%)
122% (0%)
59% (-3%)
NAFTA
101% (3%)
109% (na)
244% (10%)
137% (-7%)
122%(6 %)
104% (1%)
NAFTA
50% (15%)
Intra & Inter subregional Trade Costs in Asia (excluding tariff; 2007 in tariff equivalent; changes since 2003 in parenthesis)
ASEAN-4
East and NorthEast Asia
North and Central Asia
SAARC-4
Aus-NZ
EU-5
ASEAN-4
49% (-1%)
East and NorthEast Asia
132% (na)
105% (na)
North and Central Asia
259% (10%)
193% (-5%)
148% (12%)
SAARC-4
117% (-4%)
201% (na)
258% (-6%)
113% (-5%)
Aus-NZ
85% (-2%)
143% (na)
313% (-4%)
145% (0%)
61% (3%)
EU-5
105% (2%)
127% (na)
161% (-3%)
124% (-2%)
122% (0%)
59% (-3%)
NAFTA
101% (3%)
109% (na)
244% (10%)
137% (-7%)
122%(6 %)
104% (1%)
NAFTA
Intra-Asia trade cost HIGHER than trade cost of Asia with non-Asian partners
50% (15%)
Thank You More information on the: ESCAP Trade Cost Database - [email protected] 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 9
Annex Comprehensive Trade Cost Methodology and Selected Results
Methodology trade costs equation as
t ij t ji ij t t ii jj
1 2
xii x jj 1 x x ij ji
1 2 ( 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
Methodology (cont’d) 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) Country set for each region are defined as follows: Asia MERCOSUR
EU5
NAFTA
AUS-NZ ASEAN
Argentina Brazil
France Germany Italy Spain UK
Canada Mexico USA
Australia New Zealand
Indonesia Malaysia Philippines Thailand
East and North-East Asia China Japan Korea Macao Mongolia
North and Central Asia Armenia Azerbaijan Georgia Kazakhstan Kyrgyz Rep. Russian Fed.
SAARC Bangladesh India Pakistan Sri Lanka
China’s Bilateral Comprehensive Trade Cost Index (relative to Japan’s trade cost) 2000-2002
2006-2008
160.0 140.0 120.0
114.6 107.6 102.5
Japan = 100
100.0
94.2
107.0 100.1
103.9 95.2
94.2
95.2
88.3
99.8 92.2
81.6
80.0 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)
Non-tariff Policy-related Trade Costs - THAILAND Thailand 0.6
Non-Tariff Policy-Related Trade Costs
0.5
0.4
0.3
0.2
0.1
0 India
China
Japan
Korea, Rep.
Indonesia
Malaysia Philippines Germany
1996-1999
2000-2003
2004-2007
France
United Kingdom
United States
EU5
NAFTA
What explains changes in the trade costs across countries?* Tariff costs
Policy-related Non-Tariff trade costs
0-10%
60-90%
10% 10%
Availability/use of ICT services Business environment
25%
Liner Shipping Connectivity (port and maritime services efficiency) Direct cost of trade procedures
1%
50+ %
Natural trade costs (geographic and cultural distance between countries)
Other factors, including: -Indirect cost of trade procedures -Currency / exchange rate -Non-tariff Measures (SPS, TBT)
10-30%
*simplified representation based on Duval (2011)
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 (2010). BPA? Analysis, including mapping, timing and costing of a process (e.g., moving goods from factory to deck of ship) Necessary first step to improving a process Why?
Output of a UNNExT Business Process Analysis (1)
Use Case Diagram
Activity Diagrams
Define scope of analysis, stakeholders involved, Activities to be studied
20
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)
Export Time and Cost Estimates from BPA Studies* (Doing Business Report 2011 values shown for reference) Export from
THAILAND
Source:
DB11
K.07
Product:
?
Rice
Export to
?
CHINA
ARTNeT
DB11
CAMBODIA
ARTNeT
DB11
ESCAP
INDIA DB11
ARTNeT
Auto Parts
Sugar
?
Garment
Electric Eq.
?
Rice
Cashew
?
Fruits & Veg.
IN
BL
?
JP
TH
?
EU
IN
?
UAE
Export Time (days) Time for Document Preparation X
8
7.2
2
14
14
4
9
14
10
8
8
11
Time for Inland Carriage and Handling X
2
1.6
1.5
2
2
3.9
5.1
3
4
4
4
4
Time for Customs clearance X
1
0.2
1
1
2
2.3
0.2
3
0.5
0.5
2
2
Time for Terminal Handling X
3
1
3.25
2
3
1.3
1.2
2
2.5
2.5
3
2
14
9
8
19
21
12
16
22
17
15
17
19
509
430
TOTAL TIME for EXPORTS (WB Def.) EXPORT Cost (USD) TOTAL COSTS Exports
625
n.a.
500
366
366
732
1029
839
1,055
550
*Preliminary and adjusted to allow for comparisons. See individual studies at www.artnetontrade.org for details.
Selected findings from BPA for TF studies Document preparation takes most time, followed by transport/handling issues Some procedures/regulations driven by industry associations to prevent entry by new/small players Procedures between private parties are a big part of the overall trade process Importance of port logistics confirmed Large variations in time and cost across products (or product usage), transport routes, destination, firm size,… Data collected needs to be carefully validated (e.g., through multi-stakeholder meetings)
Conclusions and Way Forward On trade facilitation
Goal is to reduce international trade transaction costs Many components to trade costs Availability and quality of logistics infrastructure and services a key component Domestic + cross-border/international logistics On Assessing intraregional TF performance
ESCAP trade cost database provide unique BILATERAL cost information, but highly aggregate measure and 1-2 year lag. Regular standardized BPA studies on trade process should be considered at the national/regional level Possibility of combining with the WCO Time Release Study methodology
Yann Duval, Trade Facilitation Section Trade and Investment Division, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)
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…
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)
Bilateral comprehensive trade cost with Japan (ad valorem tariff equivalent), %
Source: ESCAP Trade Cost Database
Intra & Inter subregional Trade Costs in Asia (excluding tariff; 2007 in tariff equivalent; changes since 2003 in parenthesis)
ASEAN4
East and NorthEast Asia
North and Central Asia
SAARC-4
Aus-NZ
EU-5
ASEAN-4
49% (-1%)
East and NorthEast Asia
132% (na)
105% (na)
North and Central Asia
259% (10%)
193% (-5%)
148% (12%)
SAARC-4
117% (-4%)
201% (na)
258% (-6%)
113% (-5%)
Aus-NZ
85% (-2%)
143% (na)
313% (-4%)
145% (0%)
61% (3%)
EU-5
105% (2%)
127% (na)
161% (-3%)
124% (-2%)
122% (0%)
59% (-3%)
NAFTA
101% (3%)
109% (na)
244% (10%)
137% (-7%)
122%(6 %)
104% (1%)
NAFTA
50% (15%)
Intra & Inter subregional Trade Costs in Asia (excluding tariff; 2007 in tariff equivalent; changes since 2003 in parenthesis)
ASEAN4
East and NorthEast Asia
North and Central Asia
SAARC-4
Aus-NZ
EU-5
ASEAN-4
49% (-1%)
East and NorthEast Asia
132% (na)
105% (na)
North and Central Asia
259% (10%)
193% (-5%)
148% (12%)
SAARC-4
117% (-4%)
201% (na)
258% (-6%)
113% (-5%)
Aus-NZ
85% (-2%)
143% (na)
313% (-4%)
145% (0%)
61% (3%)
EU-5
105% (2%)
127% (na)
161% (-3%)
124% (-2%)
122% (0%)
59% (-3%)
NAFTA
101% (3%)
109% (na)
244% (10%)
137% (-7%)
122%(6 %)
104% (1%)
NAFTA
50% (15%)
Intra & Inter subregional Trade Costs in Asia (excluding tariff; 2007 in tariff equivalent; changes since 2003 in parenthesis)
ASEAN-4
East and NorthEast Asia
North and Central Asia
SAARC-4
Aus-NZ
EU-5
ASEAN-4
49% (-1%)
East and NorthEast Asia
132% (na)
105% (na)
North and Central Asia
259% (10%)
193% (-5%)
148% (12%)
SAARC-4
117% (-4%)
201% (na)
258% (-6%)
113% (-5%)
Aus-NZ
85% (-2%)
143% (na)
313% (-4%)
145% (0%)
61% (3%)
EU-5
105% (2%)
127% (na)
161% (-3%)
124% (-2%)
122% (0%)
59% (-3%)
NAFTA
101% (3%)
109% (na)
244% (10%)
137% (-7%)
122%(6 %)
104% (1%)
NAFTA
Intra-Asia trade cost HIGHER than trade cost of Asia with non-Asian partners
50% (15%)
Thank You More information on the: ESCAP Trade Cost Database - [email protected] 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 9
Annex Comprehensive Trade Cost Methodology and Selected Results
Methodology trade costs equation as
t ij t ji ij t t ii jj
1 2
xii x jj 1 x x ij ji
1 2 ( 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
Methodology (cont’d) 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) Country set for each region are defined as follows: Asia MERCOSUR
EU5
NAFTA
AUS-NZ ASEAN
Argentina Brazil
France Germany Italy Spain UK
Canada Mexico USA
Australia New Zealand
Indonesia Malaysia Philippines Thailand
East and North-East Asia China Japan Korea Macao Mongolia
North and Central Asia Armenia Azerbaijan Georgia Kazakhstan Kyrgyz Rep. Russian Fed.
SAARC Bangladesh India Pakistan Sri Lanka
China’s Bilateral Comprehensive Trade Cost Index (relative to Japan’s trade cost) 2000-2002
2006-2008
160.0 140.0 120.0
114.6 107.6 102.5
Japan = 100
100.0
94.2
107.0 100.1
103.9 95.2
94.2
95.2
88.3
99.8 92.2
81.6
80.0 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)
Non-tariff Policy-related Trade Costs - THAILAND Thailand 0.6
Non-Tariff Policy-Related Trade Costs
0.5
0.4
0.3
0.2
0.1
0 India
China
Japan
Korea, Rep.
Indonesia
Malaysia Philippines Germany
1996-1999
2000-2003
2004-2007
France
United Kingdom
United States
EU5
NAFTA
What explains changes in the trade costs across countries?* Tariff costs
Policy-related Non-Tariff trade costs
0-10%
60-90%
10% 10%
Availability/use of ICT services Business environment
25%
Liner Shipping Connectivity (port and maritime services efficiency) Direct cost of trade procedures
1%
50+ %
Natural trade costs (geographic and cultural distance between countries)
Other factors, including: -Indirect cost of trade procedures -Currency / exchange rate -Non-tariff Measures (SPS, TBT)
10-30%
*simplified representation based on Duval (2011)
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 (2010). BPA? Analysis, including mapping, timing and costing of a process (e.g., moving goods from factory to deck of ship) Necessary first step to improving a process Why?
Output of a UNNExT Business Process Analysis (1)
Use Case Diagram
Activity Diagrams
Define scope of analysis, stakeholders involved, Activities to be studied
20
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)
Export Time and Cost Estimates from BPA Studies* (Doing Business Report 2011 values shown for reference) Export from
THAILAND
Source:
DB11
K.07
Product:
?
Rice
Export to
?
CHINA
ARTNeT
DB11
CAMBODIA
ARTNeT
DB11
ESCAP
INDIA DB11
ARTNeT
Auto Parts
Sugar
?
Garment
Electric Eq.
?
Rice
Cashew
?
Fruits & Veg.
IN
BL
?
JP
TH
?
EU
IN
?
UAE
Export Time (days) Time for Document Preparation X
8
7.2
2
14
14
4
9
14
10
8
8
11
Time for Inland Carriage and Handling X
2
1.6
1.5
2
2
3.9
5.1
3
4
4
4
4
Time for Customs clearance X
1
0.2
1
1
2
2.3
0.2
3
0.5
0.5
2
2
Time for Terminal Handling X
3
1
3.25
2
3
1.3
1.2
2
2.5
2.5
3
2
14
9
8
19
21
12
16
22
17
15
17
19
509
430
TOTAL TIME for EXPORTS (WB Def.) EXPORT Cost (USD) TOTAL COSTS Exports
625
n.a.
500
366
366
732
1029
839
1,055
550
*Preliminary and adjusted to allow for comparisons. See individual studies at www.artnetontrade.org for details.
Selected findings from BPA for TF studies Document preparation takes most time, followed by transport/handling issues Some procedures/regulations driven by industry associations to prevent entry by new/small players Procedures between private parties are a big part of the overall trade process Importance of port logistics confirmed Large variations in time and cost across products (or product usage), transport routes, destination, firm size,… Data collected needs to be carefully validated (e.g., through multi-stakeholder meetings)
Conclusions and Way Forward On trade facilitation
Goal is to reduce international trade transaction costs Many components to trade costs Availability and quality of logistics infrastructure and services a key component Domestic + cross-border/international logistics On Assessing intraregional TF performance
ESCAP trade cost database provide unique BILATERAL cost information, but highly aggregate measure and 1-2 year lag. Regular standardized BPA studies on trade process should be considered at the national/regional level Possibility of combining with the WCO Time Release Study methodology
