Trends in International Trade: Key Issues for the World Bank and Customs

Paul Brenton International Trade Department World Bank

OUTLINE

What is the World Bank ? What do we do on trade? Research, advocacy, advice, lending. Why are we interested in Customs and trade facilitation ? Key trends in trade that will shape our work and the work of Customs

What is the World Bank?

Global co-operative owned by its 184 shareholders or member countries Run by a Board of Governors

The Bank is a UN Specialized Agency

Development agency that provides policy advice, TA, knowledge sharing and development finance

11254 staff in 111 countries

In FY 04 - IDA - $9 b 158 projects - 62 countries In FY 04 - IBRD - $11 b 87 projects 33 countries

Trade can be a powerful engine of growth and poverty reduction

Levers for Intervention Before the border (Improving overseas market access, reforming domestic trade policy) At the border (Trade Facilitation Regulatory and procedural harmonization, simplification and institutional reform) Behind the border (Improving the investment climate, improving trade and transport infrastructure, dealing with supply side constraints)

WHAT IS THE BANK DOING ON TRADE?

Research, analysis and advocacy Elevating Trade to a prominent role in Country Policy Dialogue Established Trade Department including Trade Logistics Group
Bringing together Trade Policy, Infrastructure and

Customs/Border Management teams

Stepping up traderelated operations Aid for trade?

Why is the World Bank interested in Customs?

Customs plays a critical role in trade facilitation. The costs of crossing borders now seen as a more significant barrier than tariff rates. Customs performs other important functions such as revenue collection, community protection and, increasingly, national security Customs can act as an effective integrator to ensure all trade and border related agencies work together to simplify and harmonize systems and procedures The Bank believes productive investment in Customs modernization delivers sound development results

More efficient customs are associated with more trade

Ratio of total trade to GDP, 90 countries %

200 150 100 50 0 0 5 10 15 20 25 30 35 Days through customs, imports

Source: WBES and Global Trends as cited in Subramanian, et al 2003

R2 = 0.1354

What is the Bank doing on Customs?

Stressing importance of Customs in policy dialogue Established the Trade Logistics Group Building a broader constituency for reform Global Facilitation Partnership for T & T, Diagnostic Trade Integration Studies, Trade and Transport Facilitation Audits, Trade Facilitation Seminars Coordination of donors & international organizations Customs Modernization Handbook Stepping up operations

Bank Operations - Some current examples:

Russian Customs Modernization Project ($ 140 m) Vietnam Customs Modernization Project ($ 75 m) Tanzania Tax Administration Project ($ 70 m - WB, UNCTAD, DANIDA, DFID, EU, FINNIDA, SIDA & IMF) Cambodia Trade Facilitation and Competitiveness project ($ 10 m - WB, EU & AUSAID) EAC Trade Facilitation Project ($30 m)

Despite improvements in trade policies, many Countries Have Been Left Behind

The experience of individual countries varies greatly

43 countries had no expansion of exports between 1980 and 2000 Increase in market share mainly associated with todays Middle Income Countries

Much growth in South South trade

Key issues in Bank research and analysis on trade

Global

trade agenda Regionalism Asia Standards Speed with security

Global integration

Technological change and splitting up of production chains will continue to drive greater trade and capital flows. Labour? Global companies seeking out lowest cost locations More countries are seeking to integrate into global markets The global market enacts a high price on those not using competitively supplied inputs

Success in Doha Round will still leave much to be done at global level
Possible gains in real income in 2015 as percent of full multilateral liberalization for LMICs (excluding services and trade facilitation)
100 90 80 70 60 50 40 30 20 10 0
Tiered cuts w/ SDT w/ 2% exclusions Full

Low & Middle Income

Tiered SDT ~ 70% in HICs and 40 in LMICs in ag, plus NAMA cuts of 50% in HICs, 33 in LMICs;

and 0 in LDCs

Regional Trade Agreements are proliferating

Annual number

30 25 20 15 10 5 0
1958 1969 1976 1984 1989 1994 1999 2004
Annual number

Regional Trade Agreements are proliferating

Annual number
Total in force

30 25 20 15 10 5 0
1958 1969 1976 1984 1989 1994 1999 2004
New agreements annually Cumulative in force

300 250 200 150 100 50 0

South-South RTAs predominate in number, but not in trade covered

Number of RTAs
250 200 150 100
US SouthSouth

Percent of World Trade Covered

35 30 25 20 15
US SouthSouth

10 5
European Union

50 0 1990 1996
European Union

0
2002

1990

1996

2002

RTAs can help address trade facilitation issues

RTAs can offer a mechanism to deal with cross-border issues:

Customs simplification, cooperation,

harmonisation. Transport cooperation, harmonisation of regulations, insurance.

But, many RTAs have yet to deliver better trade facilitation

Proliferation of PTAs is leading to a complex global trading system

American and Asian Spaghetti Bowl
Hong Kong PR China Taiwan Brunei Cambodia Thailand Malaysia Philippines Mexico Myanmar ASEAN Singapore New Zealand Laos Ecuador Indonesia Vietnam FTAA APEC Intra -Americas in force Intra -Asia -Pacific in force Intra -Asia -Pacific signed Trans -Pacific signed Russia Papua New Guinea Australia Peru Andean Community Chile Venezuela Bahamas Dominican Republic Colombia Bolivia Korea Canada Costa CACM Rica El Salvador Guatemala Honduras Nicaragua Japan USA Panama

FTAA

Mercosur
Paraguay Argentina Brazil Uruguay

APEC

CARICOM Dominica Trinidad & Tobago Suriname Grenada Barbados Jamaica St. Vincent & Grenadines Guyana Antigua & Barbuda St. Kitts & Nevis Belize Haiti St. Lucia

Source: Devlin and Estevadeordal (2004)

Overlapping African agreements

AMU
Algeria Libya Morocco Mauritania Tunisia

ECCAS

COMESA CEMAC

Nile River Basin

IGAD

Somalia
Sao Tom & Principe Cameroon Central African Rep. Gabon Equat. Guinea Rep.Congo Chad

Egypt

ECOWAS
Ghana Nigeria

Conseil de LEntente

Burundi* Rwanda*

Cape Verde Gambia

Djibouti Ethiopia Eritrea Sudan Kenya* Uganda*

DR Congo Benin Togo Cote dIvoire Niger Burkina Faso

Angola

Guinea-Bissau

Mali Senegal

EAC

Liberia Sierra Leaone

Guinea Tanzania* Malawi* Zambia* Zimbabwe* Mauritius* Syechelles* Comoros* Madagascar* Reunion

SACU WAEMU

Mano River Union

CLISS

AMU: Arab Maghreb Union CBI: Cross Border Initiative CEMAC: Economic & Monetary Community of Central Africa CILSS: Permanent Interstate Committee on Drought Control in the Sahel COMESA: Common Market for Eastern and Southern Africa EAC: East African Cooperation ECOWAS: Economic Community of Western African Studies IGAD: Inter-Governmental Authority for Government IOC: Indian Ocean Commission SACU: Southern African Customs Union SADC: Southern African Development Community WAEMU: West African Economic & Monetary Union

South Africa Botswana Lesotho

Namibia* Swaziland*

Mozambique

*CBI

SADC

IOC

Different agreements with different rules of origin add complexity Proliferating trade agreements with differing ROO further complicate customs procedures
clearance of preferential imports requires more manpower overlapping rules of origin cause particular difficulties for customs

Need Clear and consistent ROO with minimal costs

a) to firms in adhering to them and b) to customs in implementing them
How about satisfying either a 10% value added requirement OR change of tariff classification (6 digit HS)

Examples of Complex and Restrictive ROO

EU imports of Fish
To receive preferences under the GSP The vessel must be registered in the beneficiary country or in the EU The vessel must sail under the flag of the beneficiary or of a member state of the EU The vessel must be at least 50 per cent owned by nationals of the beneficiary country or the EU The master and the officers must be nationals of the beneficiary country or an EU member At least 75 per cent of the crew must be nationals of the beneficiary country or the EU.

The Rise of Asia

East Asias share of worlds (non-oil) imports has risen from 2.7% in 1980 to 10.6% in 2004 East Asia was the key source of export growth for Africa in 1990s Opportunities and challenges

Tremendous mass of fast growing demand (emerging

tri-polar world): key to improved market access is global negotiation Increasing competition in export and domestic markets: Need to distinguish unfair from effective competition. (Perceived) Lack of border control can undermine efforts towards trade liberalisation.

The Rising Importance of NonTraditional Exports.

Figure 3 : Changing Structure of Developing Country Agro-food Exports
100%
Share in Total Agro-food Exports
Other C ereal,o il seeds, feed Other C ereal,o il seeds, feed Other C ereal,o il seeds, feed

80% 60% 40% 20% 0%

High value commodities

High value commodities

High value commodities

M ajo r traditio nal co mmo dities

M ajo r traditio nal co mmo dities

M ajo r traditio nal co mmo dities

80/81

90/91

03/04

brings greater demands in terms of standards.

Competitiveness depends on capacity to satisfy both mandatory (SPS/TBT) and private standards in export markets
Standards in developed countries are shaping expectations of consumers in developing countries

and increased need for timeliness to be competitive.

Increasing importance of air transport (30% of US imports now come by air) For many products, globalisation means that to be competitive exporters require access to imported inputs at world prices Increasing impetus to hold lower inventories Security secure trade is now as important as free trade, and the two need not be mutually exclusive Particular problems for land-locked countries

Still much to be done to improve trade facilitation in developing countries

Average number of days to clear customs for sea cargo

Developed East Asia and Pacific Latin America and Caribbean Africa South Asia India Bangladesh

10

12

14

Source: International Exhibition Logistics Associates, based on a sample of countries in each region as cited in World Bank Global Economic Prospects 2004; country data from World Bank country surveys

Conclusions

Increasing emphasis on customs as a border management institution to facilitate timely and secure trade Bank a key source of research and operational experience on trade issues Trade facilitation essential element of Banks agenda on trade and poverty reduction