Trade Facilitation in Asia and the Pacific: Which Policies and Measures Affect Trade Costs the Most? (TIID Working Paper Series 1/11)

Working paper22 Feb 2011

How much of international trade costs can be mitigated through implementation of trade facilitation measures and policies? What measures and policies affect trade costs the most? This paper presents findings from an initial analysis of new non-tariff trade cost estimates and their determinants, based on a bilateral database of comprehensive trade cost maintained by ESCAP. Among the top trade facilitating economies are Malaysia, the United States, China, Republic of Korea and Thailand, with Japan and Germany following closely. The dominance of Asian countries in the ranking is fully consistent with the trade-led growth strategies of these economies and their emphasis on reducing international trade costs. The more detailed analysis of bilateral non-tariff policy-related trade costs further reveals that, while the trade costs of many developing countries with developed countries have remained roughly unchanged since 1996, their trade costs with other developing countries have often sharply decreased between 1996 and 2007 – at least within ASEAN. Results of the non-tariff policy-related trade costs modeling exercise strongly suggest that improving port efficiency (liner shipping connectivity) and access to information and communication technology facilities is essential to reducing trade costs. Policies aimed at liberalizing logistics and information technology services and increasing competition among service providers should therefore be readily considered, with a view to maximizing efficiency at any given level of hard infrastructure development. Establishment of public-private partnerships to accelerate the development of the national IT and transport and logistics infrastructure may also be actively pursued. The econometric results also support the view that, given limited resources available, focusing on improving the overall business environment may be often more effective in facilitating trade than implementing soft measures solely targeted at speeding up movement of goods between factory and the port (or vice-versa).