Enabling trade in East Asia

MANILA, Philippines - In 1848, the economist and philosopher John Stuart Mill wrote: “It may be said without exaggeration that the great extent and rapid increase of international trade, in being the principal guarantee of the peace of the world, is the great permanent security for the uninterrupted progress of the ideas, the institutions, and the character of the human race.”

This sentiment still resonates today, a time of heightened geopolitical tensions in Asia and elsewhere.

Last month, the World Economic Forum released the fifth edition of its Global Enabling Trade Report (GETR). Successful integration into the global economy depends on a number of measures and policies. These include steps to reduce border obstacles, such as tariffs and nontariff barriers to improve market access, as well as efficient border administration, better infrastructure and telecommunications and improved security and regulation.

There is mounting evidence that these measures, under the heading of trade facilitation, are becoming more important than tariffs and non-tariff barriers in determining trade costs.

The GETR reveals that significant trade barriers remain, preventing countries from reaping the rewards of international trade and accelerating their development. Not surprisingly, developing countries face the greatest obstacles.

The assessment ranks 138 economies for their ability to enable trade, and the list is topped by Singapore, Hong Kong SAR and the Netherlands.

ASEAN members span the entire ranking; behind Singapore, Malaysia sits in 25th place. Thailand is 57th, Indonesia 58th and the Philippines 64th. Myanmar, at 121st, is the lowest ranked ASEAN economy.

Other countries in the region suffer, to various degrees, from a lack of transport infrastructure and logistics, poor connectivity, red tape and corruption. The realisation of the ASEAN Economic Community hinges on the capacity of the Association to ease these barriers to trade.

The ways to address them are numerous. Those aimed at improving market access are currently the subject of intense negotiations as governments try to balance the interests – often diverging – of various parties. Given the current fragility of the global economy and state of international governance, it is unlikely that any significant progress in market access negotiations will be made in the near future. Measures to address infrastructure bottlenecks and connectivity gaps are part of a broader development strategy.

By contrast, improving efficiency and transparency of customs procedures can generate sizeable gains relatively quickly, at a relatively low cost and using limited political capital.

This will benefit exporters and importers alike. It profits governments, too, as improved border administration results in increased revenues through better tax collection.

The World Trade Organization’s Agreement on Trade Facilitation, adopted last December in Bali, has created momentum for these reforms.

Reforming border administration is therefore the low-hanging fruit of enabling trade.

ASEAN and the world have much to gain. The relation between trade and growth, and in turn between growth and poverty reduction, is well established. A study carried out by the World Economic Forum in 2012 found that if all countries were to improve border efficiency and infrastructure to half the level of Singapore, then exports from South-East Asia would increase by around 12% and regional GDP would increase by nine percent.

Another study estimates that the implementation of the WTO Agreement on Trade Facilitation could generate GDP gains in the area of US $1 trillion by the end of the decade. In Asia alone, these gains would amount to approximately $450 billion.