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Quantifying the Benefits of Trade Facilitation in North-East Asia Region North-East Asia Forum on Trade Facilitation Tsunehiro Otsuki, Osaka University Yejin Ha, UNESCAP East and North-East Asia Office Background Ø Rapid yet uneven economic growth within countries of the Greater Tumen Region (China, Mongolia, RoK, Russian Federation) Ø Following 2009 global economic crisis, mounting economic challenges requiring the region to develop a new way of doing business and new growth poles Ø Member Countries of GTI and UNESCAP-ENEA recognize: i. trade facilitation is a key means to increase trade flows ii. huge growth potential of GTR iii. but no systematic study on current status of trade and trade facilitation of GTR Total trade of NEA countries Million USD Source: Author’s calculation based on UN Comtrade database Key Issues ØDefinition and scope of trade facilitation are not clear ØBenefits of trade facilitation are unknown to potential participants ØCapacity development goals may be improperly prioritized Challenges in Measuring Effect Ø Measuring trade facilitation – Not just about transport cost, or customs clearance, or inventory, or communications, or standards, but all of these. Ø Choosing a methodology – Needs to be broad-based for many economies – CGE vs. econometric Ø Designing a scenario to gauge benefits – One-size fits all vs. scaled changes for different economies Trade Facilitation: Areas of Focus in Existing Empirical Works Ø Transports – UNCTAD (2001), APEC (1999), Fink, Mattoo, Neagu (2002) Ø Customs – Hummels (2001) Ø Information technology infrastructure – Freund and Weinhold (2000), Hertel, Walmsley and Itakura (2001) Ø Multi-dimensional approach – Wilson, Mann, Otsuki (2005), Otsuki (2011) Measuring Trade Facilitation: Definition Ø Simplification & harmonization of trade procedures through: – Reduced transport costs – Improved ports facilities – Efficient and modern customs regimes – Transparent and harmonized regulations – Improved information technology infrastructure Measuring Trade Facilitation: Four Areas of Focus 1. 2. 3. 4. Port efficiency Customs environment Regulatory environment Service sector infrastructure Building Indicator Step 1: Defining Inputs to Indicator n Cross-economy survey data- up to 131 economies – Global Competitiveness Report (GCR) – Global Information Technology Report (GITR) – World Competitiveness Yearbook (WCY) – Kaufmann, Kraay and Zoido-Lobaton (KKZ) Building Indicator Step 1: Defining Inputs to Indicator Ø “Port efficiency” for each economy J is the average of two indexed inputs from GCR: v v Ø “Customs environment” for each economy J is the average of two indexed inputs from GCR: v v Ø Hidden import barriers Presence of irregular extra payments and bribes “Regulatory environment” for each economy J is constructed as the average of indexed inputs from WCY and KKZ: v v Ø Port facilities and inland waterways Air transport Transparency of government policy is satisfactory (WCY) Control of corruption (KKZ) “Service-sector infrastructures” for each economy J is from GCR/GITR: v Extent of business internet use Average trade facilitation performance by region Source: Author’s calculation based on Global Competitiveness Report, World Competitiveness Yearbook, Global Information Technology Report, and World Bank Governance Index. Average trade facilitation performance for NEA countries in 2011 Source: Author’s calculation based on Global Competitiveness Report, World Competitiveness Yearbook, Global Information Technology Report, and World Bank Governance Index. Country-level Comparison in NEA Ø Ø Ø Ø 4 index categories (port efficiency, etc.) Cost to export/import Documents required to export/import Time to export/import Port efficiency of the NEA countries in 2011 Regulatory environment of the NEA countries in 2011 Customs environment of the NEA countries in 2011 Service sector infrastructure of the NEA countries in 2011 Cost to import (in USD) 2005 2011 Documents required to import (in Number) 2005 2011 Time to import (in Days) 2005 2011 Average trade facilitation performances of NEA and EAP Measuring Effect: Gravity Model Ø Gravity model -Accounting trade by – Gravity factors- GNP, population, distance – Trade promoting factors-FTA, facilitation – Trade limiting factors- regulations, distance and other frictions Ø Characteristics – Statistical approach – Essentially based on partial equilibrium Data for Otsuki (2011) Panel data for 131 countries ØTrade data –Bilateral trade values in manufacturing products from UN Comtrade database (From 5-8 of SITC rev 1 except “non-ferrous metals”) ØFTA dummy –Obtained from WTO FTA=1 if countries I and J are in any FTA FTA=0 otherwise. Simulation Halfway-Up to the Global Average Trade flow Value of Trade Trade gain economy X’s initial level economy X’s target level Global average level Trade facilitation indicator Simulation Analysis Improvement of the below-average countries to halfway toward the global average uTrade data and TF indicators for year 2011 are used to predict the effect of change in TF indicators uLimitations Lack of recent data on Mongolia’s exports Intra-regional trade in NEA Trade Volume in 2011 in million USD A fraction of country's GDP China 238,792 (8.97%) 0.033 Russia 52,186 (11.76%) 0.028 3,317 (63.96%) 0.379 206,805 (26.61%) 0.185 Mongolia RoK Note: Inside the parenthesis is % of the country’s total trade volume Source: Author’s calculation based on UN Comtrade database Inter-regional Trade in NEA Trade Volume in 2011 in million USD A fraction of country's GDP China 2,422,266 (91.03%) 0.331 Russia 391,734 (88.24%) 0.211 1,869 (36.04%) 0.213 570,367 (73.39%) 0.511 Mongolia RoK Note: Inside the parenthesis is % of the country’s total trade volume Source: Author’s calculation based on UN Comtrade database Trade gains as exporter by region (1,000 USD) Trade gains as importer by region (1,000 USD) Preliminary Findings ØWide within-region variation of TF capacity in NEA Ø Significant room for trade expansion ØAll areas in TF are found to contribute to trade expansion in NEA ($3.9 billion) ØRegulatory environment and customs environment seem to be priority areas for capacity development Preliminary Findings ØEffort by NEA only marginally contribute to creation of the intra-regional trade, but will have much greater effect on trade expansion with the rest of the world. ØIn terms of trade volume, China will gain most from TF, but in terms of rate of growth or its ratio to GDP, Mongolia will gain most. Further Research Impact of additional indicators which are relevant Ø Bilateral trade costs and cross-border issues specific to GTR Ø Eliminating size effect Ø Thank You