Trade, Growth: Weep Not for Doha

This article appeared in the China Post on July 20, 2008.

The Doha Round of multilateraltrade talks has already died athousand deaths. But, apart fromthe bureaucracies in Geneva,Brussels and Washington, few aregrieving.

That's because the worldeconomy is moving forwardwithout a World Trade Organizationtreaty. While Dohanegotiations have sputtered on forseven years, annual global tradeflows have increased 70 percent toUS$14 trillion, real annual foreigndirect investment is up 25 percentto US$1.5 trillion and the globaleconomy has expanded by 30 percentto US$54.4 trillion, myresearch into official figuresreveals. This compares with estimatedbenefits from full DohaRound success of US$287 billion ayear.

These trends can continue, particularlyif governments implementmore domestic "trade facilitation"reforms.

Trade facilitation means streamliningthe administrative andphysical procedures involved inactually moving goods across borders— the reforms that havealready contributed handsomely tothe increase in global trade,investment and output.

In fact, experience shows thattrade facilitation alone could doeven more to increase global tradeflows than further reductions intariff rates. For example, just aone-day reduction in the averagetime required to move both outboundand inbound U.S. cargothrough customs and to fulfill allother administrative requirementscould increase U.S. trade byalmost US$29 billion per year.

If the time it takes for bothimports and exports to fulfill customsand other administrativerequirements in Taiwan could bereduced to world-best levels inSingapore, Taiwanese trade withthe rest of the world would beexpected to increase by US$39 billionannually.

While stroke-of-the-pen tariffreduction is indeed an importantcomponent of increased trade,those lower tariffs will notimprove trade flows if bureaucraticcustoms procedures andshoddy logistics and communicationsare still in place.

In developing countries theaverage customs transactioninvolves 20 to 30 parties andrequires 40 separate documents tocomplete, a 2004 U.N. studyshowed.

But good progress has beenmade on trade facilitation. In thepast three years, 55 countrieshave implemented 68 reforms tostreamline procedures. Indiaintroduced an on-line customsdeclaration system which allowsclearance to begin before the shipdocks and helped reduce delaysfor exporters and importers byseven days. Rwanda partially privatizedits customs-bondedwarehouses, which sparked constructionof new warehouses and a40 percent reduction in storagefees. Macedonia eliminated duplicatecustoms procedures, slashingwaiting times by 75 percent. Whilethese actions have encouragedinvestment and greater tradeflows, there is still room forimprovement.

The World Bank's latest DoingBusiness survey offers the anecdoteof a Yemeni fish exporter,Tarik, whose fortunes are limitedby the persistence of bureaucraticexport procedures. Tarik can sellfresh tuna to Germany forUS$5.20 per kilo or frozen tuna toPakistan for US$1.10 per kilo. Ofcourse he would prefer to selleverything fresh to Germany.Instead, because it takes onaverage 33 days to get officialclearance to export from Yemen,he sells only 300 fresh tons to Germanyand 1,700 frozen tons toPakistan, at an opportunity cost ofabout US$7 million per year.

The Economist's Robert Guestonce described the process ofdelivering beer from a port inCameroon to the interior. A tripthat was supposed to take threequartersof a day took four daysbecause the delivery truck wasstopped 47 times at roadblocks,where tolls and other fees wereextorted from the driver by police.

Trade increases when barriersfall. Tariffs are barriers, but so arecorruption, administrative incompetence,superfluous paperwork,transportation monopolies and theuse of antiquated technology.

Governments are becomingmotivated to reduce these barriersbecause business, employment,investment and growth are allaffected by the country's approachto trade facilitation.

Multi-lateral agreements fromthe latest Doha talks on July 21 toreduce tariffs, subsidies and otherbarriers would be great for everybody.But even if the totteringDoha Round collapses for good,trade and growth can still risesharply with the right unilateralreforms.