Making trade easier and less bureaucratic actually helps trade

Who would have guessed?

In a new column at VoxEU.org Bernard Hoekman and Ben Shepherd asks Who profits from trade-facilitation initiatives?. Trade-facilitation is just WTO jargon for making international trade easier and less bureaucratic. As it turns out trade-facilitation is one of the few areas where WTO talks are still making progress. The Hoekman and Shepard column discusses recent research that looks at the distribution of gains from trade facilitation among exporters of different sizes. Firm-level data from many developing countries show that firms of all sizes export more in response to improved trade facilitation.

The basic conclusions and policy implications of the research discussed are:

In a global sense, trade facilitation is a ‘good deal’ for countries, in that it has the potential to bring economic benefits at least on a par with, and perhaps well in excess of, those that would come from a major round of tariff cuts in manufacturing. However, from a negotiating standpoint, as well from the point of view of development policy, it is not just the global economic gains that matter, but also their distribution. Two questions are important.

• First, is it primarily developed countries that stand to reap significant gains from improved trade facilitation, or will developing countries also gain?
• Second, and tied to the first, in the context of computable general-equilibrium models, is it only large firms (mostly headquartered in developed countries) that benefit from trade facilitation, to the exclusion of small suppliers (mostly located in developing countries)?

On the first question, the available research suggests that both developed and developing nations stand to gain from improved trade facilitation, and that exports are expected to increase for both country groups.

The second question is also empirical in nature, but has not been subject to any rigorous testing. In Hoekman and Shepherd (2013), using a large dataset from a variety of developing countries, we find that firms of all sizes benefit from improved trade facilitation by exporting more in response to improvements like reductions in the time taken to export goods. Thus, except under special circumstances that do not appear to hold widely in practice, small firms stand to benefit from trade facilitation through the same mechanism that large ones do. As a result, countries where small, supplier firms are prevalent and lead firms are few or non-existent – which is the case for many developing countries – also stand to gain from improved trade facilitation.

In terms of policy, our results and review of the literature suggest two main conclusions:

• First, those interested in supporting small producers and exporters in developing countries – policymakers, researchers, and the development community – should actively support improved trade facilitation in developing countries.

It flows from this that the same parties should welcome a WTO Agreement on Trade Facilitation.

• Second, one of the main arguments put forward by some in the policy community as a reason for developing countries to be wary of the trade-facilitation debate does not stand up to empirical scrutiny.

The fact that small firms can benefit in the same way as large firms from improved trade facilitation means that economies where supplier firms are prevalent but lead firms are not still stand to gain from trade-facilitation reforms. This is not to deny that gains from trade facilitation could be distributed unequally or that governments should monitor the impacts of trade-facilitation initiatives. Distributional issues are, of course, important to the political economy of trade negotiations, and to their development implications. In this area – as more generally – it is important that reforms and projects are designed in a way that allows assessments of impacts over time. But the available firm-level data suggests that distributional concerns do not undermine the wealth of evidence showing that trade facilitation can boost trade and real incomes across the globe.

So I say unto you, go forth and be less bureaucratic and multiply thy trading.

Reference:

• Hoekman, B, and B Shepherd (2013), “Who Profits from Trade Facilitation Initiatives?”, CEPR Discussion Paper 9490, May.