Bali, Indonesia has become the epicenter of critical new action on international trade. Between now and the end of 2013, the resort island in the Pacific will host two major international meetings where the focus will be on thinking differently about how the international community approaches trade policy. The focus, as our World Bank colleagues have urged in the past, will be on trade along global supply chains.
In December, the 9th WTO Ministerial Conference will convene in Bali. Expectations run high for a new agreement on trade facilitation. This agreement would concentrate not on traditional tariff barriers to trade, but rather on issues that have a particularly strong impact on supply chain performance – issues like customs modernization, streamlining import and export procedures, and regulatory transparency. Addressing these issues can dramatically reduce the costs associated with trade in goods and services and boost international trade. In fact, our World Bank research shows tremendous potential returns on aid to trade facilitation – returns of $697 in increased trade for every $1 of aid to trade policy and regulatory reform.
But first, APEC Economic Leaders will descend upon Bali this week to discuss how APEC Member Economies can further strengthen supply chains in the Asia-Pacific to promote increased trade and more resilient economic relationships. APEC has long been at the forefront of thinking about international trade in terms of the vast network of supply chains that connect its member economies. And APEC is working to systematically identify areas to improve supply chain efficiency.
In the World Bank Development Economics Research Group, we have been assisting APEC in this important endeavor. Most recently, we worked with the Australian Department of Foreign Affairs and Trade and AusAID to develop a brand new understanding of how APEC Member Economies are connected through international value chains and to identify opportunities to improve value chain performance through investments in transport infrastructure (ports, airports, roads and railways).
We examine new data on trade in value-added terms and find that APEC economies are in fact far more deeply integrated through supply chains than what may be apparent in traditional trade data analysis. For instance, intra-APEC trade represents 67% of the total trade of APEC members. But in value-added terms, APEC economies derive over 90% of the value of their exports from within APEC – through domestic production and from sourcing intermediate goods and services from other APEC members.
This connectedness makes the quality of an economy’s transport infrastructure (and trade facilitation more broadly) a concern not only of that economy, but of every economy connected to it through supply chains. And as we found in previous analysis, investing in port infrastructure to cut congestion by 10% could lower transport costs by 3% across East Asia – the equivalent of an across-the-board tariff reduction of between .3% and .5%.
Understanding, then, how different APEC economies add value to the exports of other economies through trade along value chains can inform targeted investments that will transmit benefits throughout the region.
The nature of international trade has changed as more and more trade occurs along global supply chains. This requires a new way of thinking about trade policy that focuses on trade facilitation along global value chains. For these reasons, between the APEC Summit and the WTO Ministerial, what comes out of Bali in 2013 may mark a significant shift in how the world promotes global economic growth through international trade.