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Trade

World Bank Economists reveal silver lining to the recent trade slowdown

Elena Gex's picture

Three World Bank Group Economists published a new blog post, This trade slowdown has a silver lining, that looks at the reasons for the 2015 global trade slowdown – cyclical factors and emerging economies – and what good we can expect to come out of it in 2016 and beyond. Using current World Bank Group data and facts, the piece from experts who work on trade every day offers a fresh perspective in a light-hearted manner on global trade and its future.

Streamlining Lao PDR’s trade regulations to help its poorest citizens

Jose Daniel Reyes's picture
Laos customs office


Economic growth and global economic integration go hand-in-hand for Lao PDR.  As a small, land-locked, and commodity-dependent country in a fast-expanding region, Lao PDR’s growth prospects are directly linked to its ability to integrate with the global economy. This is why the government has been prioritizing economic integration with both the Southeast Asia region and the multilateral rules-based trading system. In 2010, Lao PDR became signatory to the ASEAN Trade in Goods Agreement (ATIGA), acceded to the World Trade Organization (WTO) in 2013, and ratified the Trade Facilitation Agreement in 2015.

However, efforts to modernize Lao PDR’s regulatory framework governing trade and the overall investment climate have not been matched with welfare improvements. In a recent study, we provide a comparative overview of the landscape of Non-Tariff Measures (NTMs) affecting imports in Lao PDR, and identify lingering regulatory hurdles that hamper its ability to reap the gains of deeper integration with the global economy. Our findings reveal that while the existing NTM framework is broadly in line with regional practices (figure 1), the current import licensing scheme in Lao PDR and the associated array of fees linked to it raises the time and cost to bring products to market.Ultimately, the system of quantitative controls applied by Lao PDR is equivalent to an ad-valorem tariff of 5.4%, which is well above regional and world averages.

There are three main problems associated with the procedures for obtaining import licenses in Lao PDR:

Going beyond goods: Measuring services for export competiveness

Claire H. Hollweg's picture

The simplest way to think about international trade is the transfer of goods – cars, clothing, bananas. Countries that export more goods are generally better off, because they’re earning money, which allows them to import and build their economies in the process. But services are also vital to exports. In fact, services play a dual role in building an economy’s export competitiveness.

For one, services matter for manufacturing and agriculture exports. Take tee-shirts for example. Sure, they’re made of cotton, but they’re also the result of many service industries. This can include transporting cloth to the factory, tee-shirt design, testing to ensure quality standards are met, and branding and marketing for sale on international markets. All are part of the tee-shirt exporting process. [1]

The second role services play in export competitiveness involves diversification. With cost reductions and technological progress, services have become more tradeable. Exporting services provides an opportunity for export diversification and growth, which is important for economic stability. If global demand for one sector drops, a country with diversified exports can rely on others such as banking, transport, or business services.

Many governments are interested in how services support their country’s exports and economy at large. For example, how much value added do services exports, such as transport or communications, generate in a country? And how much of that is generated directly versus indirectly as inputs like transportation in our tee-shirt example? What types of services inputs, and is that different from comparator countries?

Answers to such questions are typically left unanswered because systematic data is not readily available on how services contribute to exports across developing countries and sectors.

The Export of Value Added (EVA) Database was developed to fulfill this need. The database was recently launched on the World Bank Group’s World Integrated Trade Solutions (WITS) data website. It includes data for user-specific queries and also has data for bulk download.

The EVA Database measures the domestic value added contained in exports for about 120 economies across 27 sectors, including nine commercial services sectors, three primary sectors, and 14 manufacturing sectors. The data spans intermittent years between 1997 and 2011.

What sets the EVA Database apart is the wide coverage of developing countries: over 70 of the economies included are low- and middle-income.

Why regional integration is so important for resource-driven diversification in Africa

Gözde Isik's picture
Industrial area in Kitwe, Zambia / Photo: Arne Hoel


Natural resources management, particularly in the extractives industry, can make a meaningful contribution to a country’s economic growth when it leads to linkages to the broader economy. To maximize the economic benefits of extractives, the sector needs to broaden its use of non-mining goods and services and policymakers need to ensure that the sectors infrastructure needs are closely aligned with those of the country’s development plans.

In Africa, especially, mining and other companies that handle natural resources traditionally provide their own power, railways, roads, and services to run their operations. This “enclave” approach to infrastructure development is not always aligned with national infrastructure development plans.

Picture Trade: To Understand GVCs, Connect the Dots

Gianluca Santoni's picture
The increasing salience of global value chains and their analysis has created tremendous demand for “mapping” these chains. How can we quantify the ‘value’ along a chain? How can we visualize the connections between each link?

These are questions we’ve been seeking to answer at the World Bank Group. And we’ve developed a new visualization tool, accessible through our World Integrated Trade Solution database, which allows the public to explore the quantifiable reality of GVCs.

To give you an example of how it works, let’s look at the automotive sector—a very prominent and commonly discussed GVC.

Sturgeon and Memedovic developed a methodology to break down the automotive production chain into final goods—those purchased by the consumer—and intermediate goods—those purchased by other manufacturers as inputs to be used in their own production. They identify three main GVC ‘nodes’: Automotive components (made by suppliers); engines, transmissions, and body assemblies (made by automakers); and finished motor vehicles. Table 1 shows the main exporting country within each of these nodes and its relative market share within that node.
 
Table 1: Main exporter by automotive GVC node, 2014
Main exporter by automotive GVC node, 2014

Table 2 goes one step further. By digging into the trade data, we can identify the most important products for each GVC node, in terms of their relative weight on world trade. This also helps us, in part, to identify which products or activities along the production chain are most significant or add the most value.
 
Table 2: Most traded product by automotive GVC node, 2014
Most traded product by automotive GVC node, 2014

Perhaps not surprisingly, the most exchanged automotive input ‘made by suppliers’ in 2014 falls under the classification HS870899—‘parts and accessories.’ Now, to better understand exactly how these parts and accessories move along the GVC, we can use our Global Trade Network tool on WITS to map all of the bilateral trade flows for HS870899. [1]
 
Figure 1: Global Trade Network visualization for HS870899 - Supplier perspective, 2014
Global Trade Network visualization for HS870899 - Supplier perspective, 2014

Why agricultural product standards matter for small traders in developing countries

Ana Fernandes's picture

The successful conclusion of the Trans-Pacific Partnership (TPP) negotiations has generated a lot of interest. While much of the discussion has focused on what the mega-regional trade agreement – the largest in a generation – means for environmental or labor standards, equally important are the regulatory standards on agricultural and food products known as Sanitary and Phytosanitary (SPS) measures, which are addressed in Chapter 7 of the agreement.  
 
But how much do SPS standards really matter for trade?
 
Countries impose food safety standards for good reason, namely to protect the health of domestic consumers. However, domestic food safety standards often deviate from international ones. From an exporter’s point of view, such standards are likely to be seen as barriers to entry. Producers must modify production processes in order to meet each individual market’s product regulations, which raises the cost of the product for consumers. Economists and policy-makers are hungry for micro-level evidence on the effects of such standards on trade.
 
New World Bank Group research (Fernandes, Ferro, Wilson 2015) offers a first look at how a specific set of mandatory product standards—in this case, the maximum pesticide residue permitted on unprocessed food—impacts exporters. Novel firm-level data for exporters from 42 developing countries from 2006-2012 were analyzed along with data on pesticide standards for 243 agricultural and food products in 63 importing countries. We found that pesticide standards differ greatly across countries.

In the lead up to Nairobi, is there hope for global trade governance?

Anabel Gonzalez's picture
 World Trade Organization


The World Bank Group has often argued that delivering outcomes in WTO negotiations around the core issues of the Doha Round is critically important for developing countries. Let’s take one example: with three-quarters of the world’s extreme poor living in rural areas, fulfilling the Doha Round mandate on agriculture could make a real contribution to the Bank Group’s goal of ending extreme poverty by 2030.
 
But recent news reports on global trade talks suggest that WTO Members are finding it hard to develop a shared vision on key issues and are unlikely to deliver significant progress at the upcoming WTO Ministerial Conference in Nairobi from December 15-18. Efforts are being made to produce outcomes on important issues like export competition in agriculture but large gaps remain only one week before the Ministerial Conference.
 
This continued impasse on the Doha Round is indeed a significant missed opportunity, but should this be cause for despair about the future of global trade governance? We don’t think so. There have been developments in the global trade agenda that are worthy of our attention, which should provide some hope in the lead-up to the Nairobi conference that with political will, it is possible to move forward. Here are five of these developments:  
 

Growth and development: Why openness to trade is necessary but not sufficient

Selina Jackson's picture
Photo © Dominic Chavez/World Bank


We are experiencing a battle of ideas regarding the state of the global economy and prospects for growth. Larry Summers has been leading the group of economists proclaiming that the world entered an era of secular stagnation since the global financial crisis. On the other end, Standard Chartered Bank and other players have been arguing that we are experiencing an economic super cycle—defined as average growth of around 3.5 percent from 2000-2030—due to strong growth in emerging markets and fueled by a global demographic dividend.

There is not even agreement on the factors that drive global growth and development. While parts of the Americas and Asia just concluded the Trans Pacific Partnership (TPP) and recent World Trade Organization (WTO) agreements on trade facilitation and information technology products show progress is possible, the Transatlantic Trade and Investment Partnership (TTIP) negotiations between the U.S. and the EU remain highly controversial and the upcoming WTO Ministerial in Nairobi will likely underwhelm. 

However, if you look at the facts, the situation is very clear:

Exploring the nexus between trade policy and disaster response

Selina Jackson's picture
 Nugroho Nurdikiawan Sunjoyo/World Bank


Strong trade connectivity can help disaster response and recovery by ensuring that humanitarian relief goods and services get to where they are needed when disaster strikes.  Trade policy measures, however, can sometimes have adverse effects.  Research led by the World Bank highlights that a common complaint of the humanitarian community is that customs procedures can delay disaster response, leaving life-saving goods stuck at borders.  Other measures such as standards conformity procedures, certification processes for medicines, and work permits for humanitarian professionals can slow the delivery of needed relief items.  Border closures can exacerbate situations already marked by human tragedy and unlock   full-scale economic crises. 
 
This nexus between trade policy and humanitarian response was discussed at an event organized jointly by the International Federation of the Red Cross and Red Crescent Societies (IFRC), the World Bank Group and World Trade Organization at the 5th Global Review of Aid for Trade on June 30 in Geneva.  Among the steps suggested to address concerns were rigorous disaster planning; better coordination between humanitarian actors, implementation of the WTO's Trade Facilitation Agreement and better recognition of the role of services.  

Women traders in Africa’s Great Lakes

Cecile Fruman's picture


On the northern tip of Lake Kivu, where eastern Democratic Republic of Congo (DRC) meets Rwanda, the pedestrian border crossing connecting the lush town of Gisenyi, Rwanda and the frenetic city of Goma in the DRC is called ‘’Petite Barrière’’. The name is misleading: the ‘’barrière’’ is in fact large and crowded, and features one of the highest daily flows of traders in Africa; between 20,000 and 30,000 traders cross it every day. For them, as for many others in the region, cross-border trade is a critical source of income.

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