Commentary

Greasing the World Economy Without Doha

The Doha trade round died a thousand deaths long before this week. But outside the bureaucracies in Geneva, Brussels and Washington, few are grieving because the world economy has moved on.

As Doha negotiations sputtered for seven years, the WTO reports that annual global trade flows have increased 70%, to $14 trillion. UNCTAD reports that annual foreign direct investment flows are up 25%, to $1.5 trillion. And the IMF notes that the global economy has expanded by 30%, to $54.4 trillion. These positive trends should continue if governments unilaterally ramp up their own “trade facilitation” efforts.

Trade facilitation is about streamlining the administrative and physical procedures involved in actually moving goods across borders. These sorts of reforms have contributed heavily to the increase in global trade, investment and output.

Leading global economists, including Simeon Djankov and John Wilson of the World Bank, note that trade facilitation could do more to increase global trade flows than further reductions in tariff rates. While reduced tariffs are important, they will not improve trade flows if bureaucratic customs procedures and shoddy logistics and communications systems are still in place.

Yet progress on trade facilitation is being made. In the past three years, according to the World Bank, 55 countries have implemented 68 reforms to help streamline trading procedures. For example, India introduced an online customs declaration system that allows the customs clearance process to begin before the ship docks and has helped reduce delays for exporters and importers by seven days. Rwanda partially privatized its customs bonded warehouse facilities, sparking construction of new warehouses and a 40% reduction in storage fees.

Much remains to be done. The World Bank’s most recent “Doing Business” survey offers the anecdote of a Yemeni fish exporter, Tarik, whose fortunes are limited by the persistence of bureaucratic export procedures. Tarik can sell fresh tuna to Germany for $5.20 per kilo or frozen tuna to Pakistan for $1.10 per kilo. But since it takes on average 33 days to get official clearance to export from Yemen, he sells only 300 fresh tons to Germany and 1,700 frozen tons to Pakistan, at an opportunity cost of about $7 million per year.

While reduced tariffs are important, they will not improve trade flows if bureaucratic customs procedures and shoddy logistics and communications systems are still in place.”

Robert Guest, former trade correspondent for the Economist, reported at a recent Cato Institute forum about the process of delivering beer from a port in Cameroon to the country’s interior rain forest. A trip supposed to take less than one day took four because the delivery truck was stopped 47 times at ad hoc roadblocks where tolls and other fees were extorted from the truck driver.

Trade increases when barriers fall. Tariffs are barriers, but so are corruption, administrative incompetence, superfluous paperwork, transportation monopolies, and the use of antiquated technology. Governments are becoming motivated to reduce these barriers, since the number and quality of companies operating in their countries, employment levels, investment flows, and economic growth are all determined to some degree by the government’s approach to trade facilitation.

Stephen Creskoff reported recently in the Global Trade and Customs Journal that a one-day reduction in the average time it takes to move outbound U.S. cargo from a warehouse to a port and inbound cargo from a U.S. port to a domestic warehouse could increase U.S. trade by almost $29 billion per year. That’s more additional annual trade than economists attribute to the pending U.S.-South Korea trade agreement.

Agreements to reduce formal trade barriers are welcome. But there are plenty of reforms countries can undertake on their own.

Daniel J. Ikenson is associate director of the Center for Trade Policy Studies at the Cato Institute.