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Hello from Brussels. The big news today is the speech come later from US Trade Representative Katherine Tai on trade with China. The messages for speech, together with a intervention of Trade Secretary Gina Raimondo praising steel and aluminum tariffs suggests the Biden administration will extend the continuity of Trump’s approach to China.
The World Trade Organization is releasing the latest of its biennial forecasts this afternoon.
Meanwhile, the various European Commissions travel police cars returned from last week’s Council on Trade and Technology in Pittsburgh and from excursions in Asia promised to revolutionize transatlantic economic cooperation and secure the global semiconductor supply chain. There remains only a small problem about exactly how to do it.
Today’s chapter looks at the issue of trade facilitation – ports, product inspections, paperwork and so on – in the light of the delete of the World Bank’s Doing Business report, one of the highest profile sources on the subject.
Mapped waters look at some of the barriers, trade and otherwise, that the EU’s SMEs face.
No matter what the rankings are; just show us the results
The World Bank’s annual Doing Business report died a sad death a few weeks ago amid head of criticism about political interference, but the original idea was good. Founded in 2003 as a way to quantify qualitative judgments about the business environments of countries, the trade component Cross-border trade, was especially helpful in getting policymakers a broader view than just considering tariffs.
It is pretty clear to anyone trying to do business in very emerging markets that clogged borders are often a much bigger trade constraint than taxes. You can only look at the experience of sub-Saharan Africa, where many countries are significantly lowering tariffs as part of the IMF and the World Bank’s structural adjustment programs of the 1980s and 1990s, yet not being rewarded with much more integration into the global economy.
Technically and often politically, it is much more difficult for a government to clean up a corrupt customs service or computerize goods declarations than to change a tariff schedule. Doing business was based on the idea that information on these issues would cause competition between governments. The WTO Agreement on Trade Facilitation (TFA), which entered into force in 2017 — the closest to a substantial multilateral agreement since the WTO was established in 1995 — was also aimed at giving countries best practice standards. For low-income countries, development aid would presumably be linked to reform.
But here’s the problem. The measures will always be less precise than the percentage rate on a tariff. (In any case, what applies as a single procedure if you do the formalities for shipping a 20ft container?) The OECD (albeit something of a competitor in this area, as it has its own trade facilitation indicators) point out that the reality on the ground often does not conform to paper regulations. Doing Business figures have been found to overlook the huge differences in the treatment of different businesses in the same country. An attempt to repeat the Doing Business indicators by a Brazilian business association similar found.
And even if they measure what they are trying to measure, there is always a danger if indicators turn into targets. Ministers are starting to boast about improvements in their rankings by designing policies that incorporate blocks rather than making real improvements. Even worse, as claimed in the controversy that ultimately matters, it encourages governments to reach the scale with an eager thumb. Thorsten Beck of the European University Institute point out that it is an application of the Goodhart Act: that any reliable statistical link is broken when you try to use it for public policy purposes.
Let us be clear: the principle of trade facilitation is great. The author of Today’s Trade Secrets spent one morning in the Zambian Bureau of Standards using spectrometry to measure the quality of cotton fiber: it was truly fascinating. It tries numerically to calibrate the effect of difficult policies.
Take India. The government of Narendra Modi has been criticized for avoiding opportunities for trade liberalization, such as the Regional Comprehensive Economic Partnership. As we said last week, it is also revamping the machinery of management by being difficult on issue after issue in the WTO.
Does this mean that Modi’s government is inevitably protectionist? It would say no, point out a massive jump in the Doing Business “cross-border trade” position in 2018 from 146 to 80, after digitization of customs, improved schemes for trusted traders, taxes on general services and so on.
But the indicators are ambiguous. A newspaper by two senior Indian customs officials points out that several indicators – including two from the World Bank, one from the World Economic Forum and one from the UN – often point in different directions. The Global Trade Alert, a monitoring service of the University of St Gallen in Switzerland, say it India has introduced more restrictive than liberalizing measures in recent years.
So, what should we deduce? No one seriously argues that trade facilitation is not extremely important. But the debacle Doing Business warns against believing that measures are precise and objective. The idea of trying to turn trade facilitation into a formal trade policy, such as the TFA, also seems a bit ambitious. It seems more fruitful to just look at how trade actually happens in each country and what problems with bureaucracy and infrastructure are an obstacle. Harder to judge, but perhaps more realistic. Not everything that is good in life is easy to measure.
The European Center for International Political Economy has a great paper last week looked at what the EU’s trade policy can do to change as many SMEs as possible, worth more than $ 1 billion. As is well known, most of these companies are from the US and, to a lesser extent, China.
The newspaper finds several reasons for this, including a number of non-tariff barriers on exporters in the EU.
The reason why it is more important for SMEs than larger enterprises is that overcoming these obstacles often involves fixed costs, which – if spread over lower incomes – have a greater impact on performance. Claire Jones
Before Katherine Tai’s speech, the Chad Bown of the Peterson Institute reminds us of how badly the Trump administration’s one-sided dealings with China worked (our characterization, not his).
A silver lining for exporters from China’s power outage: the delivery cost between the US and China drop it (Nikkei, $) the last four days with almost half.
With the WTO today releasing its forecast for global trade, is the most recent data on trade in goods, from the Dutch research institute CPB here.
Japan’s powerful business premises is complain (Nikkei, $) of lost transactions and failed production targets due to strict travel restrictions. Alan Beattie, Francesca Regalado and Claire Jones