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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

Putting trade and investment at the center of the G20

Marcus Bartley Johns's picture


Photo by Marcus Bartley Johns

It might not have made the leading global headlines but, three weeks ago, there was a significant new development in global governance of trade and foreign investment. In Beijing, China convened the first meeting of a new working group in the G20 to pursue initiatives in these areas: the G20 Trade and Investment Working Group (TIWG). Over two days, officials from G20 members and invited governments, along with the World Bank Group and other international organizations, discussed the future direction of trade and investment in the G20.
 
This is a promising step. There is no doubt that the G20 can have an impact in this area. The G20 accounts for three-quarters of world trade; half of global inward Foreign Direct Investment (FDI) and two-thirds of global outward FDI; and 80 percent of global output. Actions taken by the G20 also have a clear impact on developing countries outside the G20, with around 70 percent of non-G20 developing-country imports coming from the G20 countries, and around 80 percent of those countries’ exports directed to the G20.

However, the G20 has yet to deliver its full potential on trade and investment.
 
In the wake of the financial crisis and the elevation of the G20 to a leaders-level forum, the group emphasized immediate post-crisis recovery, as well as such pressing issues as financial regulation and macroeconomic stability. Attention has since shifted to the need to restore growth in a still-weak global economy, defining the achievement of “strong, sustainable and balanced growth” as a key priority for the G20.

Spurring global growth via a new Trade Facilitation Agreement

Klaus Tilmes's picture

As the global economy struggles to emerge from its chronic slow-growth stall, policymakers are increasingly focused on an energetic opportunity to help jump-start economic growth: the adoption of the landmark Trade Facilitation Agreement (TFA) that is now nearing ratification and implementation. By helping reduce trade costs and by helping enhance customs and border agency cooperation, a recent WTO report has found, the successful implementation of the TFA’s provisions could boost developing-country exports by between $170 billion and $730 billion per year. The OECD has calculated that the implementation of the TFA could reduce worldwide trade costs by between 12.5 percent and 17.5 percent.
 
Buoying the spirits of those who hailed the broad support for TFA at December’s ministerial conference of the World Trade Organization (WTO) in Nairobi, 68 countries have already ratified the agreement. The number of county-by-country ratifications is fast approaching the total of 107 required for the TFA to go into effect. Adopted in December 2013 at the WTO’s conference in Bali, the TFA is the WTO’s first-ever multilateral accord, having won approval from all 162 WTO member nations. The agreement contains provisions for expediting the movement, release and clearance of goods traveling across borders. It also sets out measures to promote cooperation among customs and border authorities on customs compliance issues.

A recent seminar at the World Bank Group – convened by the Trade Facilitation Support Program (TFSP) of the Trade and Competitiveness Global Practice (T&C) – explored the provisions of the TFA and learned of the increasingly active role of the private sector in supporting the TFA’s enactment. Awareness and momentum are building as a new coalition of private-sector firms – the Global Alliance for Trade Facilitation – mobilizes business support for TFA’s effort to speed and strengthen cross-border commerce. As the seminar heard from Norm Schenk, who serves as the chairman of the International Chamber of Commerce’s (ICC) Commission on Customs and Trade Facilitation, members of the alliance plan to meet in Washington this week to explore strategies for promoting the TFA’s adoption.

Stuck on the periphery of international trade and global value chains

Daria Taglioni's picture
Firms that are able to access and use the Internet, mobile telecommunications and other digital technologies are much more likely to export, to export to more destinations, to become part of global value chains (GVCs) and to connect to and survive in the global marketplace. They also grab a larger slice of a country’s total exports, and their products tend to be more diverse.

In Jordan, for example, the use of ICT and digital technologies affects firms’ export performance across multiple dimensions (figure 1) – share of exports, sales, market share and survival. This trend can be seen in other developing countries as well, including Chile, India, Indonesia, Peru, South Africa, Thailand and Ukraine.
 
Figure 1. Jordan: Performance of technology-enabled vs. traditional exporters (Source: eBay, 2014)

Yet, as the 2016 World Development Report Digital Dividends highlights, despite the many individual success stories and the rapid spread of digital technologies, aggregate effects on development, growth, jobs, and services of low-income developing countries (LIDCs) is lagging. The lack of ICT capacity and access is often most evident in limiting the opportunities of small- and medium-enterprises (SMEs), as illustrated in the World Bank-OECD report Inclusive GVCs.

Picture Trade: Types of tariffs explained

Siddhesh Kaushik's picture

Let’s start with the basics. What is a trade tariff? It’s a customs duty, or tax, on imported merchandise. For example, if a store owner is importing shoes, a tariff collected by her government might add to the price she has to pay for them. There has been a global effort to reduce tariffs around the world because they make goods more expensive for firms and consumers alike. Lowering tariffs was a major objective of the Uruguay round of negotiations at the World Trade Organization. But in certain circumstances, some governments consider tariffs helpful as a policy tool – they raise revenues and protect local industry from foreign competition (in the shoe example, a locally produced shoe might be cheaper than the imported one with a tariff).

While we’ve used a simple example, tariffs can be quite complex. There are three main types of tariff and they can be queried in UNCTAD TRAINS available through World Integrated Trade Solution (WITS). The three types of tariff are Most Favored Nation (MFN), Preferential and Bound Tariff.  

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